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Choosing an Adjustable Rate Mortgage An adjustable rate mortgage (ARM) can be a great way to lower the monthly payment on your new loan. Adjustable rate mortgages are fixed for a period of time (i.e. one month, six months, one year, three years, five years, seven years, ten years) and after the initial period the interest rate on the loan adjusts and is determined by certain financial indicators. ARMs are usually named by the length time for which the initial rate is fixed (i.e. a loan that has an initial fixed period of three years, which then converts into a one year adjustable rate mortgage, is called a 3/1 ARM). The adjustment to the interest rate is based on an index (a published financial figure) and a margin (a fixed number established at the time the loan closes). The interest can fluctuate based on that index + margin, within the interest rate caps (also established at the time of obtaining the loan). The index, margin and the possible caps of adjustment associated with each loan will vary depending on the terms of the program. Many consumers are confusing the index of the loan with the actual features associated with varying loan options. Most lenders now use a LIBOR index for their adjustable rate mortgages. The term LIBOR refers to the index used to calculate the rate at the time of adjustment (see above). Interest Only adjustable rate mortgages were some of the first types of loans to use this index and are often misnamed LIBOR loans. To find out more about Interest Only ARMs (click here). When applying for an adjustable rate mortgage loan, law requires that consumers receive the handbook "Consumer Handbook on Adjustable Rate Mortgages" describing the risks associated with an ARM. Lenders and brokers are also required to disclosure how the interest rate and payments are determined, and how the interest rate and payments may change (usually in the form of an Adjustable Rate Mortgage Disclosure presented to the applicant at the time of loan application). Other topics that may be of interest to you To request the "Consumer Handbook on Adjustable Rate Mortgages," click here If you would like to have an ARM disclosure emailed or faxed to you for a specific product, you can send your request to info@hillsidelending.com. Please include the type of ARM you are interested in receiving more information about. |
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Tel: 770-418-1126 Fax: 770-418-9804 Email: info@hillsidelending.com |
