THEY TOOK A BAD RAP, AND UNDERSTANDBLY SO, BUT...
During the recent housing and lending boom adjustable rate mortgages were very commonly used. The reasons for this were many; namely, their starter or "teaser" rates were considerably lower than other loans AND they were so easy to qualify for. The policy makers and investors at the higher levels of the lending industry laced these loans with extremely high margins AND predatory language in the forms called the "adjustable rate rider", the clause that contains the terms that spells out how the loan will be adjusted, when and by how much. Unfortunately, these margins and riders were not made very visible to the borrowers by predatory loan officers who sold them. At companies such as Ameriquest, Aegis and others, the cubicle-dwellers were coached by upper management to practice this way and were even given incentive to do so. Sadly, this condition played a major role in the meltdown and housing crisis.
It is important, however, to understand and clearly distinguish the difference between this type of adjustable rate mortgage (the beast formerly known as the SUB PRIME ARM) and the government-insured adjustable rate mortgage in today's environment. The sub prime ARMs were the 2/28 and the 3/27, meaning that the rate was fixed for the first 2 or 3 years, respectively, and then became variable for the remaining 28 or 27 years, respectively. These loans no longer exist, for obvious reasons. However, the government backed ARM in today's environment is tied to the safest index in the economy, the CMT, or Constant Maturity Treasury. The government ARMs, (meaning the FHA or VA ARMs) also contain very low margins and have extremely protective CAPS, (the figures that restrict or limit how often and by how much a customer's rate may adjust). Additionally, the government ARMs in today's market carry interest rates that are a good 2 points lower than today's average 30 year fixed rate mortgage. Another safety feature with this type of ARM is that when sensible to do so, a borrower that has closed on a government ARM may "streamline" to a government fixed rate loan! The streamline is a process whereby the borrower simply converts their mortgage loan to a fixed rate government loan with very little underwriting, verifications, appraisal or expense. This process occurs when the fixed rates dip enough to warrant doing so. Finally, understand that the 3 and 5 year FHA or VA ARMS allow the approved buyer to be qualified at the start rate, thereby allowing the approved buyer to purchase more home for their dollar!
In conclusion, know that this is not to pitch or hype the 3 or 5 year FHA or VA ARM to anyone or everyone. BUT, if you are someone who knows you will not keep your mortgage for more that this duration, such as a first time buyer or any buyer who knows they wont live at their new home for longer than this amount of time, this type of mortgage loan may make perfect sense! It has the potential to save you hundreds per month and thousands over the couple of years!
For more on adjustable rate mortgages and the history of various indexes that they are tied to please visit:
http://mortgage-x.com/general/mortgage_indexes.asp
To learn more about how rates are calculated, determined or what your rate may be if approved for financing today, please call my team and I! You will be very glad that you did!
To fill out a secure online mortgage application for this type or any type of program please visit:
http://www.saramortgage.com/apply.asp/Hollis/New%20Hampshire
As always, I'm here to help!
Jamie Woods ~ Senior Loan Officer ~ FHA/VA/USDA Specialist ~ SARA Mortgage & Financial, LLC ~
Cell: (603)-965-8241 Office: (603)-816-0255 email: jamie@saramortgage.com
web: http://www.mortgagemagician.blogspot.com
Licensed by the NH Banking Dept
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