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Adjustable Rate Mortgage ARM Loans

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Adjustable Rate Mortgages or ARM loans are very popular today.

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Adjustable Rate Mortgages ( ARM Loans )
gain popularity as interest rates rise.

Adjustable Rate Mortgages offer safety, easy qualifying and affordability to Summit County home buyers / owners.

Interest is lower because Adjustable Rate Mortgages ( ARM loans ) give the borrowers a lower monthly payment in exchange for sharing risk over the term of the loan. Adjustable rate mortgages are a popular way of home financing when interest is high or climbing. The homeowner or buyer can take advantage a lower monthly payment to start with. After the initial fixed term of the adjustable rate mortgage ARM loans, usually 1 to 7 years, the borrower can either refinance or sell the property. If the borrower does not plan on keeping the ARM loan long term, Adjustable Rate Mortgages are the perfect financing tool. This is because 30 and 15 year fixed interest rates are the most expensive programs available. If you don't need long term financing, why pay for it? Interest Only payments are also available on these programs.

Qualifying for the financing is yet another issue. Home buyers in Summit county can qualify at the start rate on adjustable rate mortgages. This allows the borrower to purchase more home or refinance to a higher amount. If that dream mountain home seems just out of reach, an ARM loan may make it possible. From an investment standpoint, buying a more expensive home will pay higher profits when it's time to sell due to appreciation.

Are these programs financially safe? Yes, very much so, now. Adjustable rate mortgages got a bad reputation when they first came out. This is because they had no periodic or lifetime adjustment CAPS, the limit as to how much the payment and or rate can increase or decrease. On average, adjustable rate mortgage caps are 1 to 2% in interest each adjust period or 7.5% maximum increase in payment. These are maximum increase caps but your payment could actually go down if the market allows. The maximum lifetime cap of the ARM loan is usually 5 to 6% over the start rate. These caps allow you to compute the worst cast scenario on payments.

An ARM loan will adjust periodically depending on the index used. The adjustable rate mortgages index is the base to which the "margin" ( lenders profit margin ) is added to get to the "note %". Index + Margin = Interest %. Margins can vary widely so shop around. There are many different indices used in ARM loans. These indices are published in most daily newspapers and can be obtained online easily. A few are the 3 month, 6 month, 1 year T-Bills. Others include the COFI ( Cost Of Funds Index ) and the LIBOR ( London InterBank Offered Rate ). Below are historical graphs of some of the most common indices, the T-Bills and LIBOR.

Almost one-third of applicants these days are getting this type of home financing. The hardest to understand element of an ARM is the index. If you have further questions, just give us a call.

A thorough shopper will run across many different and various acronyms to denote the different ARM indexes, such as COFI, LIBOR, MAT and CMT. Each responds at its own peculiar pace to the economy's fluctuations.

Indexes can be divided into two broad categories. Those that are based upon averages and those that are based upon the more volatile spot market. The spot market indices can move sharply in a short time frame. There is some overlap between the two categories. ARMs indexed to averages will tend to move more slowly and in rather gradual steps, whether the markets are rising or falling. ARMs based on the spot market will go up and down abruptly.

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Summit Realty
and Loan, LLC
Independent Broker
PO Box 2788 / 36 Cartier Ct.
Dillon, CO 80435
970-513-8010
1-800-938-3668
www.SummitRealtyandLoan.com