Determining The Adjustable Rate Mortgages

813 Words Sep 11th, 2016 4 Pages
Why would anyone consider an adjustable rate mortgage when fixed rate loans are at their lowest in over half of a century? Interest rates are even lower on ARM mortgages and for buyers who are certain that they will sell within the fixed rate term, there are significant savings to be realized depending upon current market conditions. Even so, these mortgages are not practical for everyone but for those who are absolutely sure they will own the real estate for limited period of time the savings can override the risk of a potentially higher interest rate in the event plans change.

Today 's suite of adjustable rate programs include a number of structural options but the standard market acceptable versions all follow the same basic format. The interest rate is fixed for a period of time and subsequently adjusted annually during the ensuing years. Although the primary consideration other than interest rate is the length of time to the first adjustment, the criteria effecting how the adjustments are made is also an important to understanding the impact on future mortgage payments.

Program Options

Lenders are partial to ARM 's because their exposure to below market interest rate mortgages rates is limited therefore they offer rates commensurate with the fixed rate term. Also because the interest rate adjusts after the initial fixed term they eliminate the accounting problem of carrying substantially below market investments on their balance sheet far into the future. The…
Open Document