What exactly is the definition of an ARM mortgage?
 

In article ,
Thrasher Remailer wrote:
From what I hear, it is a ripoff?

Not necessarily, as long as you KNOW what is going on.

Briefly, it is a loan where the interest rate changes periodically.
Every 3 months or 6 months or whenever it "adjusts", giving rise to the
name. (ARM == Adjustable Rate Mortgage). The new value is calculated
from an index (there are many many indexes it could be based on) usually
plus some fixed value. Some of the possible indexes are better for the
consumer than others. Example: 11th district cost of funds (find it in
the newspaper or online) plus 3%. Adjusted every 6 months. Maximum
change 1%. The maximum change (the lower the better for you) says that
in a given adjustment period the rate can't go up or down more than 1%
even if the index goes up more. Some ARMs will have a lifetime cap,
which means that it can't increase past (say) 6% more than it was initially.

If I was seeking a mortgage, I might be offered an ARM which is initially
5% or a fixed at 6%. I would take the fixed unless I was VERY sure that
the index would go down or hold steady or I expected to be in that house
a relatively short time.

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Rich Greenberg Marietta, GA, USA richgr atsign panix.com + 1 770 321 6507
Eastern time. N6LRT I speak for myself & my dogs only. VM'er since CP-67
Canines:Val, Red & Shasta (RIP),Red, husky Owner:Chinook-L
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On 30 Jul 2005 17:42:55 -0000, Thrasher Remailer
wrote:

From what I hear, it is a ripoff?

Not necessarily. Basically, it a mortgage that starts with a set rate
and after a period of time can "adjust" to some set value (you can
look at a number of mortgages to see what they are based on - so many
percentage points above prime etc.) and usually have a cap of some
kind. We refinanced a house on a 7 year ARM with a starting rate
around 4% because we knew we weren't going to be in the house more
than a few years and would sell before the rate could climb. If you
plan to move soon, pay off the mortgage soon or think the rates may
drop an ARM could be a good thing. If you plan to stay in the house
for a long time and you want to pay off the loan over a full 30 (or 15
or whatever) or you feel the rates will climb then an ARM may not be
for you.

And anyone that had an ARM for the last 5 years has done very well, as
the rates were well below fixed rate loans. In fact, I would say that
over the last decade, an ARM has produced lower rates than a
conventional 30 yr loan. Of course, this can all change in the future,
but certainly ARMS in general are not a rip off.