real estate finance - full book (500 pgs)

A loan with an adjustment period of 6 months is

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Unformatted text preview: Board and Federal Home loan Bank Board, is part of the required disclosures to ARM applicants. Much of the following material is taken from this Consumer Handbook. The complete copy of the handbook is in Appendix B or You may download the complete copy of the Consumer handbook from www.federalreserve.gov/pubs/brochures/arms/arms.pdf CHARACTERISTICS OF ARM The principal objective of ARMs is to transfer some of the risk of continually rising inflation from the lender to the borrower, while at the same time tailoring loans more closely to the borrower's financial circumstances. With a fixed–rate mortgage, the interest rate stays the same during the life of the loan. But with an ARM, an adjustable rate mortgage, the interest rate changes periodically, usually in relation to an index, and payments may go up or down accordingly. LOW INITIAL RATE Lenders generally charge lower initial interest rates for ARMs than for fixed–rate mortgages. This makes the ARM easier on the pocketbook at first than a fixed–rate mortgage for the same amount. It also means that one might qualify for a larger loan because lenders sometimes make this decision on the basis of current income and the 9-8 Licensing School for Appraisal, CPA, Contractors, Insurance, Real Estate, Notary, Nurse, Food Handlers, Tax and Securities 9: FIXED RATE MORTGAGE AND ALTERNATIVE MORTGAGE INSTRUMENTS first year's payments. Moreover, an ARM could be less expensive over a long period than a fixed–rate mortgage–for example, if interest rates remain steady or move lower. Teaser rates – In highly competitive markets, lenders offer so called teaser rates. Teaser rates are abnormally tow rates designed to attract borrowers. Once the loans are granted, the low teaser rate soon disappears and the usually higher ARM rates take effect. The low teaser rate allows some buyers to qualify for a loan that they would not otherwise be able to obtain. Some lenders are now offering teaser rates but insist that the borrower be able to qualify at the nor...
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This note was uploaded on 12/30/2010 for the course SOC 101 taught by Professor Zhung during the Spring '10 term at Punjab Engineering College.

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