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Unformatted text preview: ng for a loan. Fixed Rate or Adjustable Rate – If the borrower has sufficient income and credit position to qualify for either a fixed rate or an adjustable rate loan, which would be better for the borrower? Here the borrower does his own gambling. if the borrower thinks that interest rates will go up, a fixed rate loan will provide protection from rising interest rates. if the borrower expects interest rates to fall, an adjustable–rate loan will provide interest savings. Shopping for an ARM – Because the adjustable–rate loan requires that the borrower assume the risk that interest rates might rise, the borrower should expect a lower interest rate, not counting the initial “teaser” interest rate that applies only for the first few months. To make comparisons, look at the APRs, not just the interest rates. • Shop Indexes – The “cost of funds” index is the slowest changing–preferable if interest rates are lower at the time but might go up. The U.S. Treasury bill index is the fastest changing– preferable if interest rates are high at the time but are expected to go down. Shop Margins – The margin is the percentage added to the index to arrive at the applicable interest rate of the loan after the initial “teaser” rate is terminated at the first adjustment period. Margins can be 2%, 2.5%, 3%, etc. A high margin with a low index could be preferable to a low margin with a high index, or vice versa. Shop Caps – Some ARMs provide annual interest rate caps – the maximum annual interest rate increase, example 2%; and some ARMs provide lifetime interest rate caps, example five percent. Some ARMs have payment caps, for example 7}% maximum • • 15-18 Licensing School for Appraisal, CPA, Contractors, Insurance, Real Estate, Notary, Nurse, Food Handlers, Tax and Securities 15: REFINANCING OR NOT AND CHOOSING A LENDER
annual increase in the payment, regardless of interest rate increases. GOVERNMENT LOANS
FHA and DVA loans – The emergence of FHA–insured and DVA...
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- Spring '10