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#1
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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. -- 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 Atlanta Siberian Husky Rescue. www.panix.com/~richgr/ Asst Owner:Sibernet-L |
#2
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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. |
#3
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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. |
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