Home : Blogs : Ann Guy : Blogging the truth about mortgages

ARMs are not just attached to your shoulder

I am sure you have heard, it's everywhere in the news. Foreclosure rates are ridiculous. And one of the reasons, according to the media, is ARM's

What is an ARM anyway? Just about everyone knows what a fixed rate loan is. If you have a fixed rate loan, the interest rate will never change for the duration of the term, whether it be 30 years, 15 years, etc.

ARM is an acronym for an Adjustable Rate Mortgage. However, there are different types. If not explained properly, you may not fully understand what it is you are getting yourself into. Did you know that many ARMs have a fixed rate period?

Let me explain. I will use the 2/28 as an example. With this particular loan program, the rate is locked in, or fixed for the first two years of the loan. For the next 28 years remaining on the loan, the rate can adjust either up or down, depending on what the market conditions are at that point in time. There is a cap on the rate, which means it can never go higher then X %, called the ceiling rate. There is also a floor rate, which is the lowest rate the loan will ever have. This is usually the rate that you start out with. Some ARMs 'adjust' once a year, some twice a year. Some rates have a maximum increase of 2%, some 3%. Read your mortgage note for the specifics of your loan.

What if you are looking for a loan now? Which program is better for you? Unfortunately, that can not be answered so easily. Every situation is unique. What is good for you is not necessarily good for me.

Here are some things to consider:

Start with your plan. Is the house your primary residence or an investment property? How long are you planing on owning the house?

How much equity is remaining after the loan? Taking an ARM at 100% of the value of the home is risky. With the current housing market, house are not appreciation like they have been for the last several years.

Are you normally a gambler? What I mean is do you normally take risks, or are you on the conservative side? If your answer is the latter, then I would recommend a fixed rate loan.

Weigh you options carefully. If you have questions, do not hesitate to ask them. I will make my recommendation based on my professional opinion. In the end, remember, I am not going to pay your mortgage payment, you are. Ultimately, the choice is yours.

Posted by Ann Guy on 07/27/2007 12:52 PM

Comments (18)

carnival of content, adjustable rate mortgage, fixed rate

This post has been included in Pennsylvania Information
Post is included in group: Carnival of Content - Loan Officers/Mortgage Lenders

18 Comments on ARMs are not just attached to your shoulder

JUL

2007

Smart, short, sweet, & to the point. Just like you Ann, with the exception of the sweet part:-) I like it.

Oh, good one, Ann! You gave good information, gave the public points to think over and asked for contact. I like this one. :o)

Ann,

I like the fact that your professional enough to end your post with, The choice is yours.. And we know in the end it is their choice, so you sound like a solid Mortgage professional..

Good Job,

Tom Weiss

Jason-I am sweet to the right people ;-)

Sarah-Thanks! I am glad you liked it (and thanks for the points...I'll have to refer back to your comment for future blogs)

Tom-I try my best to be a professional. I tell all my customers that becuase I truely believe it

Well done Ann. You said it best, the competition is tough!

Ann, "I will make my recommendation based on my professional opinion." I can't really add much to a perfect quote. You are truly a professional Ann

don't most 2/28's adjust every 6 months after the initial adjustment?

Ann, good point in bring out the fact that "there is also a floor rate, which is the lowest rate the loan will ever have". Most everyone brings out the fact that the rates can only go up to a certain amount on an ARM, usually 6% life time. But usually leave out the fact that there is a floor on how low it can drop. Thank you for including that.

JUL

2007

Ann...

I just had to come in here and tell you that you cracked me up with the title of your post :)

TLW...ROAR!

JUL

2007

Ann....nice simple explanation. 3 things that you highlighted are great for the consumer. First, you did mention the floor and the ceiling, explaining the difference. You also stated that every situation is unique and then when into a series of questions. Knowing the clients goals.

Lastly, you brought into the equation the clients equity position and that an arm might not be good if you do a 100% loan. But you back it up with the fact that it depends if they have the financial backing or support to pick up the lose ends per se if things don't go well. Less risk for them.....Again, sweet and simple.

jeff belonger

JUL

2007

Matthew-Thank you so much. I try my best.

Jay-Most do adjust semi-annually, not all. That is why I recommend reading the note.

George-I try to put myself in a customers shoes and point out what I would want to know. And I would want to know if my rate could go lower

TLW-I am glad you liked it. I was insure but couldn't come up with anything else after writing.

Jeff-Thank you very much for your insight. When it comes down to i, we should be focusing our advice based on a customers goals.

JUL

2007

Many clients think of the immediate future and not that their ARM may become something they can no longer bear. Thanks for help bringing more of this to light.

There is also something called the sleep factor. If you are considering an ARM and you tend to worry alot, you may endup lying in bed not sleeping, worrying if your rate will go up.

AUG

2007

Danielle-We are all guilty of that at some point; just worrying about the here and now and not the future

Michael-Jason Sardi had mentioned the sleep factor in his post re: ARM's. If you dodn't get a chance, I suggest you read it

Ann, I am surprised at the uninformed buyers out there. Great post easy for clients to understand. I have to get to know all you folks in the cozy corner of Active Rain. Thanks again for the invite!

I agree. Any ARM Product is like a gun. Guns don't kill people, people kill people. In the right market, and under the right conditions, an ARM product can be a valuable alternative. Let's just hope the day of putting the "common man" into a Pay Option and selling the start rate as the only disclosed rate is long gone!

Hi Ann, how did I miss your post the other day, sorry, this is good infomation, yes..read your note, all the little words too. All of it....

Leave a response…

Name:

Email:
(optional)

Comment:

What does the graphic say?