Adjustable Rate Home Loans
|
Adjustable rate home loans are available for qualified borrowers and can provide a real alternative to the traditional fixed interest loans that have dominated the mortgage industry for so many decades. ARMs are the answer to the dilemma of wanting more house than the fixed rate loans can provide and can make seemingly out of the question home purchases a reality. There are many types of ARMs available, and some have features that require very careful consideration before purchasing. They almost always have introductory rates that lending institutions offer as a teaser , and go up after the first year, and although not dramatically in interest , the homeowner will see a difference in his monthly payment. The fixed rate loan could be compared to a traditional tweed jacket with elbow patches that reeks of conformity and steadiness. The adjustable rate loans are more like clothes fresh from the designer houses of New York; hip, trendy and very much the product of the fashion winds that blow.
An ARM is based on an index which guides the rise and fall of interest rates. Adjustable rate home loans do have the very tenuous characteristic of being able to rise from month to month in terms of loan repayment. While the actual amount of the loan remains the same, the amount of the monthly payment can rise because interest rates have inched up. On very large loans for example, an eighth of a point rise in house loan interest rates could raise the next month's payment by fifty dollars. Not such a horrible thing, but if they rise every month at the same rate, it could make a five hundred dollar difference in a house payment in a year. If this isn't frightening enough, there are usually two percent caps on yearly interest increases, which could make that payment, well, you figure it out. On top of that already a disaster scenario, the highest cap an ARM can go is often seven or eight full points above the original introductory number. Guess who would be moving out of that house if such a thing would happen!
And consider this awful possibility. Suppose a person gets one of the adjustable rate home loans available and the rates begin to rise. By the seventh month of the year, the interest rates have reached their cap under the stipulations of the lending agreement. So the monthly payment is now at the highest level it will be for the remaining five months of the year. If you think that is good news, think again. For the next five months, the loan begins what is called negative amortization. This means that during those five months assuming that the interest numbers keep rising, the interest not being paid because of the cap is now being put on principle. If things stay that way, a faithful mortgage payment schedule would still mean a person owes more money on the house than at the beginning of the loan. OUCH!
Adjustable rate home loans are not any more hard or easy to obtain than a fixed rate lending agreement. Some things ought to be considered however before landing on this type of agreement and settling in for the long haul. If a person is going to stay in a house for a long time, best go with a fixed numbered loan. A few years' stay and the advice would be to jump on adjustable rate mortgage loans and ride them to the end. If a person thinks they are going to get an income boost in the future, adjustable rate home loans might be an okay decision. But if college expenses or a new car purchase or some other large ticket items are still to be made, how will they fit in the budget if interest rates rise and begin the big squeeze. Whether the reader is aware of it or not, there is an increasing media bias against all things having to do with Jesus Christ and His followers. Jesus said this would happen when He declared: "If ye were of the world, the world would love his own; but because ye are not of the world, but I have chosen you out of the world, therefore the world hateth you." (John 15:19)
Not all adjustable rate home loans are the same. For example there are fixed period ARMs which allow the owner to enjoy a fixed interest schedule for a selected period of years, such as three, five or ten. At the end of the selected period, the interest schedule reverts to the adjustable rate of the one year treasury securities index at the time. Fannie Mae and Freddie Mac have offered their own two and three year versions of these fixed period ARMs to those who have had recent bankruptcies or other financial problems. Convertible adjustable rate home loans allow the homeowner, usually within five years after closing, to convert to a fixed rate loan if desired.
The bottom line is to always look around and see what's going on. If the economy is swinging and the interest rates are down and the GNP is up and there doesn't seem to be anything on the international horizon and one's job is secure and the weather is good...okay, there's no way to really read the tea leaves. So instead, use good sense. Adjustable rate home loans can put a person in that dream house. Will it be worth the possible worry?
|
|
|
|
