Mortgage Financing And Adjustable Price Mortgages

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Mortgage Financing And Adjustable Price Mortgages

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By : Ike Ani 19 or more times read

Submitted 2010-02-16 17:44:22

Adjustable rate mortgages (ARMs) have been a popular form of mortgage financing in recent years. These mortgages start out at low rates for a set period; then adjust along with the index to which they are tied. As interest rates go up, so do the monthly payments.

The index to which the interest rate is tied varies from lender to lender. The most common indexes are the rates on one, three, or five-year Treasury securities. An additional favorite may be the average cost of funds to savings and loan associations. To the index rate, the lender adds a couple of percentage points called the "margin."

The main attraction - The main attraction of adjustable rate mortgage financing is that it's initially cheaper than fixed rate financing for the same size mortgage. Not only does this mean lower monthly payments to begin with, it means borrowers can qualify for larger loan amounts. That’s because lenders sometimes decide whether to make a mortgage based on the ratio of current income to monthly payment.

The primary drawback - The trade-off for low initial rates may be the risk of rates going greater within the future—much higher. Many borrowers who run into this problem have to refinance, as Frank Nothaft, Freddie Mac’s chief economist points out. "But the wide proliferation of adjustable-rate mortgages originated in the past few years that are nearing their first interest-rate adjustment provides borrowers an incentive to refinance into a lower-cost ARM or fixed-rate mortgage."

Right for you? - Adjustable price mortgage financing make sense for borrowers who cannot qualify for a fixed rate mortgage large sufficient for the house they wish to purchase, or for those whose income is likely to rise sufficient to cover greater payments within the future. It would not be a great move for those who might move in the next few years.

Author Resource:- For more information on the above topic, check out my site The Lowest Mortgage Rate at http://www.thelowestmortgagerate.info

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<!DOCTYPE HTML PUBLIC '-//W3C//DTD HTML 4.01 Transitional//EN' 'http://www.w3.org/TR/html4/loose.dtd'>; <html><head><title>Article2008.com | Mortgage Financing And Adjustable Price Mortgages</title></head><body><h3>Mortgage Financing And Adjustable Price Mortgages</h3> By: Ike Ani Adjustable rate mortgages (ARMs) have been a popular form of mortgage financing in recent years. These mortgages start out at low rates for a set period; then adjust along with the index to which they are tied. As interest rates go up, so do the monthly payments. The index to which the interest rate is tied varies from lender to lender. The most common indexes are the rates on one, three, or five-year Treasury securities. An additional favorite may be the average cost of funds to savings and loan associations. To the index rate, the lender adds a couple of percentage points called the "margin." The main attraction - The main attraction of adjustable rate mortgage financing is that it's initially cheaper than fixed rate financing for the same size mortgage. Not only does this mean lower monthly payments to begin with, it means borrowers can qualify for larger loan amounts. That’s because lenders sometimes decide whether to make a mortgage based on the ratio of current income to monthly payment. The primary drawback - The trade-off for low initial rates may be the risk of rates going greater within the future—much higher. Many borrowers who run into this problem have to refinance, as Frank Nothaft, Freddie Mac’s chief economist points out. "But the wide proliferation of adjustable-rate mortgages originated in the past few years that are nearing their first interest-rate adjustment provides borrowers an incentive to refinance into a lower-cost ARM or fixed-rate mortgage." Right for you? - Adjustable price mortgage financing make sense for borrowers who cannot qualify for a fixed rate mortgage large sufficient for the house they wish to purchase, or for those whose income is likely to rise sufficient to cover greater payments within the future. It would not be a great move for those who might move in the next few years. Author Resource:-> For more information on the above topic, check out my site <a href="http://www.thelowestmortgagerate.info/">The Lowest Mortgage Rate</a> at <a href="http://www.thelowestmortgagerate.info" target="_blank">http://www.thelowestmortgagerate.info</a> Article From <a href='http://article2008.com/'>Article2008.com</a> </body></html>

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