Adjustable Rate Mortgage

An adjustable rate mortgage or variable rate mortgage is a loan secured on a property whose interest rate and monthly repayment vary over time.

Adjustable rate mortgages that have a fixed periods for 3, 5, 7, or 10 years are often called Hybrids. They adjust after the fixed period ends.

Some sub prime ARMS have a pre pay penalty attached to them.If you are quoted a ARM with a pre pay penalty ask if it is a hard or soft pre pay. A soft pre pay will allow you to sell the house with no penalty. A hard pre pay requires you to pay the penalty if you sell or refinance the mortgage before the pre pay expires. Pre pay panalties will vary in the amount required from 60 days interest to 6 months interest.

Hybrid programs are an excellent way to keep your payment lower if you plan to refinance or sell the home in just a few years.

The interest rate on ARM's are made up of two components, the index and the margin. When choosing between different ARM programs, it is prudent to understand the volatility of the underlying indices as well as the margins.

An adjustable rate mortgage, also known as an ARM, is a mortgage with an interest rate that is linked to an economic index. The interest rate, and your payments, are periodically adjusted up or down as the index changes. Ask a Mortgage Professional if a ARM is right for you?

Managing Credit - The four most important factors regarding credit are:
1. Pay all of your bills on time. Know what bills report to the credit bureaus and which ones dont. This will help to maintain a better credit rating. Do not let accounts go to collection.
2. Limit your balances on all revolving credit (such as home equity lines and credit cards) to approx. 20-39% of your credit limit. (If you have 2 credit cards with balances of $250 each and a limit on both of $1,000, this is ideal). Do not max. out your credit cards and it is better to have small balances on 3 cards than to have 1 large balance on 1 card.
3. 2-4 credit cards is the ideal number of open credit cards to have. Make sure that you do not close credit card accounts when you pay them off. Your length of credit history and how long you have had open accounts is a big factor in credit scoring. If you have a ton of credit cards, close the newer ones and leave the ones that have been open for a long open.
4. Credit inquiries - I know there is a myth that you should only let 1 company pull your credit when you are looking to buy something because every pull lowers your credit score. This is right and wrong. Watch how many people are pulling your credit because you dont want to have numerous credit inquiries each and every month. However, when you are shopping for a mortgage, or anything for that matter, make sure you do all of your shopping around within a 14 day time frame because all mortgage related credit inquiries within this time frame will only affect your credit as though only one company checked your credit.

ARM Adjustable Rate Mortgage - Adjustable Rate Mortgage; a mortgage loan subject to changes in interest rates; when rates change, ARM monthly payments increase or decrease at intervals determined by the lender; the Change in monthly -payment amount, however, is usually subject to a Cap.

If you are currently in the tail end of the fixed period in your Adjustable rate loan, often 2 years, 3 years or 5 years after you took it out, this may be the best time to get a fixed rate mortgage refinance and lock in your rate while it is low. While mortgage rates rise and fall, the current market outlook is that they will continue to increase over the next couple of years, and you don't want to be stuck paying a lot more money for a couple of years when you have the opportunity to refinance ARM into fixed rate mortgage today.

There are many Adjustable Rate Mortgage products available today. Some ARM products have rates that adjust immediately the following month after settlement, others have an initial fixed rate period of 1, 3, 5, 7, or 10 year. ARM that have an initial fixed interest rate period is also known as Hybrid Loans.

When choosing an ARM product, it is as important to consider the underlying indices and margins as picking the lowest teaser rates. Different indices have different sensitivity to the interest market. In other words, some indices such as Treasury bills and LIBOR are highly sensitive to market conditions and adjust rapidly. The 11th District Cost of Funds Index, also known as COFI, tends to move slower in comparison and therefore less volatile.

ARM products almost always have an initial interest rate that is lower than that of fixed rate products of the same loan term. These lower starting rates, also refered to as Teaser Rates, are meant to induce/reward borrowers who are willing to bear some of the risks of future interest rate movements.

ARM's are great for keeping your payment down for a fixed period of time while you work on your FICO score and aim for a better fixed rate down the road.

Some ARM loans have an interest only option. These loans are very popular with people who do not plan on staying in the home for a long period, want to qualify for a larger home and investment properties to increase Cash Flow due to the lower payments.

Other ARM product features that need to be considered include the Period Adjustment Caps which limits the maximum rate change allowed at an given adjustment, the Floor, which is the lowest possible rate of the loan, regardless of the value of the underlying index, and the Life Time Cap, which sets a ceiling for the maximum rate of interest throughout the life of the loan.

An ARM, short for "adjustable rate mortgage", is a mortgage on which the interest rate is not fixed for the entire life of the loan. The rate is fixed for a period at the beginning, called the "initial rate period", but after that it may change based on movements in an interest rate index.

The ARM rate quoted by a lender or broker is the initial rate. It holds until the end of the fixed-rate period, which can last from a month to 10 years. This rate is critically important if the initial rate period lasts for 10 years, but it is very unimportant if the period is only one month.

On the most popular ARM program, the initial rate period is 12 months, and on more than half the period is 36 months or less. While you can always opt for an ARM with a longer initial rate period, the rate goes up as the period lengthens. If you need the rate on a one-year ARM to qualify, you must consider very carefully what happens after the fixed-rate period ends.

For most folks a 30 year mortgage is overkill. They will refinance again inside of the next 5 years. Why take such a higher rate for a 30 year mortgage if your going to refinance? Adjustable Rate Mortgages allow you the flexibility you deserve when taking a loan.

An adjustable-rate mortgage (ARM) with an initial fixed-rate period of pre-determined years, during which the borrower is may have an option to pay only the interest accrued on the loan. The interest rate then adjusts annually or bi-annually, based on the indexes such London Inter-Bank Offered Rate (LIBOR) index, and can move up or down as market conditions change.

ARMS have caps so the borrower is protected by a maximum adjustment the lender can make over the term of the loan. This information should be clearly identified in the Truth in Lending statement (TIL) which should be given with the Good Faith Estimate (GFE).

ARM loans come with different initial fixed rate periods such as 1 2 3 or 5 year fixed. After the initial period they will start to adjust according to the index they are tied to. What's nice about ARM loans is it allows the borrower to have a lower payment initially. These type programs can be used for many reasons, one of them being for someone who won't be living in a property for an extended period of time.

An ARM (Adjustable Rate mortgage) is a nice option for people who have a second home and want to have the lowest payment possible on that property for a certain period of time. ARM's also work well with investment properties to help keep the payments down so that the investor can maximize overall Cash Flow. There are many different types of ARM's available. There are 1,2,3,5,7, and 10 year ARM's. There are interest only ARM's also. These ARM's are fixed for a set period of time and work the same exact way as a regular ARM, however you are only required to make the interest only portion of the payment. This is a great feature for investors and for anybody who really wants to maximize their Cash Flow. There are ARM's that fluctuate monthly, semi-annually, and yearly. It is very important to ask questions about the type of ARM you are going to be placed into.

When financing with an Adjustable Rate Mortgage (ARM) make sure that you do not have a pre-payment penalty that is longer than the fixed period of your loan. You do not want to be in a 2 year ARM and have a pre-payment penalty that lasts for 3 years.

If you do have a loan with a pre pay penalty ask if it is a hard or soft pre pay. A soft pre pay will allow you to sell the house with no penalty. A hard pre pay requires you to pay the penalty if you sell or refinance the mortgage before the pre pay expires. Pre pay panalties will vary in the amount required from 60 days interest to 6 months interest.

In addition to caps, which limit how high the interest or payment can adjust, most ARM mortgage loans have floors, which limit how low the interest rate can go.

The initial interest rate for an ARM is lower than that of a fixed rate mortgage, where the interest rate remains the same during the life of the loan. A lower rate means lower payments, which might help you qualify for a larger loan.

There's couple of questions that is very important when considering the ARM:

How long do you plan to own the house? The possibility of rate increases isn't as much of a factor if you plan to sell the home within a few years.

Do you expect your income to increase? If so, the extra funds might cover the higher payments that result from rate increases.

Some ARMs can be converted to a fixed-rate mortgage. However, conversion fees could be high enough to take away all of the savings you saw with the initial lower rate.

An adjustable rate mortgage, called an ARM for short, is a mortgage with an interest rate that is linked to an economic index. The interest rate, and your payments, are periodically adjusted up or down as the index changes.

If you are considering an adjustable rate mortgage, make sure you do the research. Find out how often the rates can increase and by how much. Try to determine whether you can afford payments if the rates go up significantly over the next few years.

"American consumers might benefit if lenders provided greater mortgage-product alternatives to the traditional fixed-rate mortgage,...To the degree that households are driven by fears of payment shocks, but are willing to manage their own interest-rate risks, the traditional fixed-rate mortgage may be an expensive method of financing a home."

- Alan Greenspan, the Chairman of the Federal Reserve Board at the Credit Union National Association 2004 Governmental Affairs Conference

Most lenders tie ARM interest rate changes to changes in an "index rate." These indexes usually go up and down with the general movement of interest rates. If the index rate moves up, so does your mortgage rate in most circumstances, and you will probably have to make higher monthly payments. On the other hand, if the index rate goes down your monthly payment may go down.

Lenders base ARM rates on a variety of indexes. Among the most common are the rates on one-, three-, or five-year Treasury securities. Another common index is the national or regional average cost of funds to savings and loan associations. A few lenders use their own cost of funds, over which--unlike other indexes--they have some control. You should ask what index will be used and how often it changes. Also ask how it has behaved in the past and where it is published.

Adjustable rate mortgages or ARMs have Interest Rate Caps.
Rate caps limit how much interest you can be charged over a period or over the life of a loan.

- A Periodic rate cap limits the amount by which your interest rate may increase at the adjustment period(s). Only some ARMs have these period caps.

- Overall or lifetime rate caps limit how much rate can change over the life of the loan. Lifetime or overall caps are required by law and hae been required by law since 1987 on all Adjustable rate mortgages.

ADJUSTABLE-RATE MORTGAGE (ARM)
A mortgage loan where the interest rate is not fixed for the entire term of the loan, and can change during the life of the loan in line with movements of an index rate.

If your ARM has started to adjust, it might be a good idea to refinance into a fixed rate loan.

2/28 ARM is a great product. Especially for 1st time home buyer or sub prime borrower. Allows them to strenghen credit over the two year period.

An Adjustable Rate Mortgage (ARM), will carry a lower initial interest rate than a typical 30 year fixed rate mortgage. The lender is hoping that you will forget about the adjustment, and just continue to hold on to the loan. Be aware of when your loan is due to adjust, as well as by how much it will adjust.

If one or more of these situations describes you, an ARM might be a good fit:
-You plan to stay in your home for a relatively short period of time
-You want lower initial monthly payments and can handle potential payment increases in the future
-You want to qualify for a larger mortgage amount, and you expect your income to go up over time

It has been shown, that home owners would have saved thousands of dollars if they had a ARM of a conventional 30 year fixed.

When should you take an ARM mortgage vs. a traditional 30 year fixed?
Consider how long you plan on occupying the property. If it is for 10 years or more then a 30 year fixed may be the best bet when interest rates are low. However, if you plan on moving sooner then consider the extra savings you will achieve by choosing an ARM.
For example, you plan moving when your child is old enough to go to school in three years. The best financial choice would to get a 3 year or possibly a 5 year ARM. When a 30 year fixed mortgage is around 5.875% a 5 year ARM is around 5.25% and a 3 year ARM would be about 5.00%. On a $200,000 loan the monthly payments would be $1183 for a 30 year, $1104 for a 5 year ARM, and $1073 for a 3 year ARM. Times that by 3 years, 36 months, and your savings for an ARM vs. a 30 year fixed would be between $2800 - $3900. Money better spent elsewhere.

If you only plan on living in your home for a few more years, it might not be worth it to move from a program like a low rate ARM or an Interest Only Program to a traditional Fixed Rate loan. There may be better things to put your money towards each month that putting a few extra dollars towards the principal of your home.

How to choose an ARM Loan - You will usually have 4 choices of Adjustable Rate Mortgages(ARMs) offered: 3/1, 5/1, 7/1 and 10/1. The numbers used to describe the ARMs refer to the period for which the initial rate holds, and the rate adjustment period after the initial rate period ends. On a 3/1, for example, the initial percent rate holds for 3 years, then the rate adjusts annually. All these ARMs have annual rate adjustments after the end of the initial rate period.

Another critical factor to consider when choosing an ARM loan is, what are the annual caps and the lifetime caps of the ARM loan. In other words, is there a maximum rate that my loan can go up to or can it just adjust as high as possible each adjustment period and over the life of the loan. Most ARM's have an annual cap of 1-2%. This means that your rate cannot increase or decrease by more than 1 or 2 percent at any given adjustment period. Most ARM's have a lifetime cap of 6%. This means your rate cannot increase or decrease by more than 6% over the life of the loan.
Example:

Typically the interest rate on an ARM is lower than the interest rate on a fixed rate mortgage. ARMs are a smart choice over a fixed rate if you do not plan on keeping the property for a long period of time.

Watch out! Sometimes the relationship between ARM loans and Fixed rate Mortgages(FRM's) can become inverted! This means a 5 year ARM (or a 3,7, or 10) could actually have a higher rate than a 30 Yr. Fixed.

When choosing what ARM product is best for you make sure that you do not have a pre-payment penalty that is longer than the fixed period of your loan. You do not want to be in a 2 year ARM and have a pre-payment penalty that lasts for 3 years.

There are also two critical elements to consider when evaluating an ARM: the index and the margin. The interest rate you will pay at the end of the fixed period will be determined by the index at that time, which may adjust periodically, and the margin, which will remain fixed for as long as you remain in that loan.

Hybrid Pay Option ARM program. - The Hybrid Pay Option ARM program can be an excellent mortgage program for someone who needs to pay down credit card debt, but cannot qualify for a Cash-Out Refinance.

The Hybrid Pay Option ARM program frees up a tremendous amount of Cash Flow.

Most homeowners consider Hybrid Pay Option ARM for one or more of the following advantages this mortgage program offers:

1. To be able to buy more home with the same income
2. To be able to allocate a bigger portion of income towards other debts
3. To have control over tax deductability of mortgage interests from year to year
4. To off set seasonal incomes
5. To take advantage now of anticipated increase in income

A Hybrid Pay Option ARM is one of the fastest growing mortgage products available. This program allows the borrower the most flexibility with their mortgage payment each month by allowing, usually, 3-4 different payment options on each mortgage billing statement each month. Option 1 is generally the lowest payment option which can incur negative amortization. Option 2 is usually an interest only mortgage payment. Option 3 may be a 15 year mortgage payment. Finally Option 4 may be a 30 year mortgage payment. The Hybrid Pay Option ARM is great for self-employed and commissioned borrowers who may not receive a steady income. This gives these borrowers the opportunity to pay incredibly low monthly mortgage payments during slow months and pay their normal payments during the other months.

AFTER BANKRUPTCY: APPLYING FOR CREDIT - Many people who have filed bankruptcy in the past apply for credit the wrong way.

They fill out a credit application and hope for the best. Best case, they probably end up paying a lot more in interest and finance charges - hundreds or even thousands of dollars more, depending on what theyre buying.

Having a perfect mortgage history after bankruptcy will help you when applying for credit.

Refinancing your mortgage after bankruptcy and making timely payments can help you rebuild your credit to potentially higher levels than even before your bankruptcy within as little as two years.

Here are the three steps in more detail...

Step One: Learn how to increase your credit score.

Increasing your credit score is a key factor in lowering the interest rate you pay on loans and getting approved for them as well. Unfortunately, there are a lot of myths out there that can actually hurt your credit score.

There a number of ways to increase your credit score. One way is to watch your credit card balances. Lenders don't like to see them go above 50% of the available credit limit.

For example, if you have a credit limit of $3,000 and you're current balancing owing is $1,800 (60%) that can hurt your credit score. In this situation, there are two ways you can fix the problem.

First, of course, is to pay the balance down so that it's less than 50% of the credit limit. The other way is to get a credit limit increase:

If you can get a credit limit increase to $5,000 that will means you will be at less than 50% of your credit limit ($1,800 balance versus $5,000 credit limit). And you didn't have to pay down the balance by a penny!

Another way to increase your credit score is to add years of positive credit history to your account. Most people don't know about this and it's 100% legal. But that's another article in itself.

The point I am trying to make is that there are a number of strategies you can use to increase your credit score. Best of all, many of them can be implemented quickly and easily.

For more info contact your mortgage consultant now! Customers@RefinanceOne.net

That said, in this article we are going to talk about the RIGHT way to apply for credit and loans. So what is it? Well there are three steps:

1) Learn how to increase your credit score

2) Know the credit approval process

3) Know how to apply for credit and loans

Now, you want to get all three of these steps right. Not just one or two, but all THREE! See if you miss one, or don't do it just right, you can end up paying $100s, $1,000s or $10,000s in additional interest and finance charges, depending on

After a bankruptcy, it is important that the consumer re-establish his/her credit. This is accomplished by opening credit accounts and using them responsibly, avoiding any late payments and high balances.

How a borrower has re-established and used credit after a BK is one of the primary considerations of the lender when deciding to approve a home mortgage to a borrower with a past bankruptcy.

One way to obtain a credit card if your credit scores won't allow you to qualify is to apply for what they call a secured credit card. You can get this from your local bank. In this case you would put up $100 dollars as a safeguard to allow you get a credit limit of $100-$200. Only use this for items you would normally buy such as groceries and pay it off every month. This will give you one open trade line. You may need a few open tradelines to qualify for a mortgage.

That brings us to step three...

Step 3: Know how to apply for credit and loans.

Knowing which lenders to approach and how to negotiate with them is also really important.

Apply for a loan or credit with the WRONG lender and you're practically guaranteed to be turned down; or, you end up paying a pile of interest.

Then there's there is the negotiation process. This especially important when you're buying a car - for example, people will spend a lot of time negotiating the price of the car they're buying and the value of their trade in (if they have one) - and STILL be taken advantage of. They don't know how to REALLY negotiate for a car.

Think about it. How often do you buy a car? If you are like most of people it's probably once every so many years. Now, how many times a day do you think a busy car dealership negotiates with buyers? Multiply that by weeks, months and years and you can see that they have slightly more experience.

You should now have an idea of the RIGHT way to apply for credit after bankruptcy. Though I wasn't able to go into detail on ALL of the strategies you can use to increase your credit score and qualify for credit and loans at more reasonable rates this should at least give you a starting point.

Step Two: Know the credit approval process

What do potential lenders look for? Here you need to know the questions to ask. For example, do they work with people who have had a bankruptcy in the past? What is the minimum credit score they want to see? These are just the initial questions.

There are a number of other questions. There are also a number of items that send up red flags if a lender sees them on your credit application - ones that could jeopardize your chances of qualifying for the loan or cost you more money in interest.

Another factor when applying for credit and loans is timing. You don't want to apply for credit and loans until you've increased your credit score (most people make this mistake).

Bankruptcy laws are always changing and may or may nor affect your current living situation. Always consult a professional regarding the ramifications of filing bankruptcy.

Even though the credit card is secured by your own funds it is very important that you make timely payments. Any late payments after a Bankruptcy will severely limit your options.