FIN 420 - Week 4 - DQ 1

FIN 420 - Week 4 - DQ 1 - loan option has been used...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
Adjustable rate mortgages (ARMs) have received a great deal of bad press due to the tremendous number of foreclosures resulting from families who could not afford the loan payments once the interest rates increased. Do you believe this loan option was used appropriately in recent years? Why or why not? Under what circumstances does the use of ARMs make sense? Please explain. I'm not sure if this is just my overall scepticism of banks and mortgages at this point,  however, I feel that ARMs are a way to "bait and tackle" new homeowners. The  option lures you in with the tantalizing low interest rate, which is linked to an  economic index. This makes these low interest rates not guaranteed. I don't think this 
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: loan option has been used appropriately in recent years due to the fact that there are so many foreclosures all over the country. Whether the banks did not assess the potential homeowners' finances or eluded them into believing that the interest rate will stay the same because of various reasons is just the tip of the iceberg. I would avoid this type of loan if possible, however if it is the only option under circumstances, I'd have to take it. Another plausible reason as to why one could use this type of loan is if the rates are low and the homeowner plans to relocate in the near future....
View Full Document

This note was uploaded on 02/26/2012 for the course FIN 102 taught by Professor Franks during the Spring '12 term at University of Phoenix.

Ask a homework question - tutors are online