Types of Loan Programs: Conforming, Jumbo Loans, FRM, ARM, Balloon Mortgage, what is an arm


what is an arm mortgage

What is an arm mortgage

What is an arm mortgage

What is an arm mortgage

What is an arm mortgage

Types of Mortgage Loans

Conventional and Government Loans

Any mortgage loan other than an FHA, VA or an RHS loan is conventional one.

The Federal Housing Administration (FHA), which is part of the U.S. Dept. of Housing and Urban Development (HUD), administers various mortgage loan programs. FHA loans have lower down payment requirements and are easier to qualify than conventional loans. FHA loans cannot exceed the statutory limit. Go to FHA Programs page to get more information.

If you are looking for an FHA home loan right now, please feel free to request personalized rate quotes from HUD-approved mortgage lenders via our website.

VA loans are guaranteed by U.S. Dept. of Veterans Affairs. The guaranty allows veterans and service persons to obtain home loans with favorable loan terms, usually without a down payment. In addition, it is easier to qualify for a VA loan than a conventional loan. Lenders generally limit the maximum VA loan to $203,000. The U.S. Department of Veterans Affairs does not make loans, it guarantees loans made by lenders. VA determines your eligibility and, if you are qualified, VA will issue you a certificate of eligibility to be used in applying for a VA loan.

VA-guaranteed loans are obtained by making application to private lending institutions. If you are interesting in obtaining a VA-guaranteed loan you can try our VA loan request form.

Please see also pamphlets published by VA.

RHS Loan Programs

The Rural Housing Service (RHS) of the U.S. Dept. of Agriculture guarantees loans for rural residents with minimal closing costs and no downpayment. Visit our page RHS programs for details.

Ginnie Mae which is part of HUD guarantees securities backed by pools of mortgage loans insured by these three federal agencies – FHA, or VA, or RHS. Securities are sold through financial institutions that trade government securities.

State and Local Housing Programs

Many states, counties and cities provide low to moderate housing finance programs, down payment assistance programs, or programs tailored specifically for a first time buyer. These programs are typically more lenient on the qualification guidelines and often designed with lower upfront fees. Also, there are often loan assistance programs offered at the local or state level such as MCC (Mortgage Credit Certificate) which allows you a tax credit for part of your interest payment. Most of these programs are fixed rate mortgages and have interest rates lower than the current market.

Conventional loans may be conforming and non-conforming. Conforming loans have terms and conditions that follow the guidelines set forth by Fannie Mae and Freddie Mac. These two stockholder-owned corporations purchase mortgage loans complying with the guidelines from mortgage lending institutions, packages the mortgages into securities and sell the securities to investors. By doing so, Fannie Mae and Freddie Mac, like Ginnie Mae, provide a continuous flow of affordable funds for home financing that results in the availability of mortgage credit for Americans.

Fannie Mae and Freddie Mac guidelines establish the maximum loan amount, borrower credit and income requirements, down payment, and suitable properties. Fannie Mae and Freddie Mac announces new loan limits every year.

The national conforming loan limit for mortgages that finance single-family one-unit properties increased from $33,000 in the early 1970s to $417,000 for 2006-2008, with limits 50 percent higher for four statutorily-designated high cost areas: Alaska, Hawaii, Guam, and the U.S. Virgin Islands. Since early 2008, a series of legislative acts have temporarily increased the one-unit limit to up to $729,750 in certain high-cost areas in the contiguous United States. Permanent limits, which apply to the Enterprises’ acquisitions of certain mortgages originated prior to July 1, 2007, are set under the terms of the Housing and Economic Recovery Act of 2008 (HERA).

For every county and county-equivalent in the country, maximum loan limits for mortgages can be found at: http://www.fhfa.gov/Default.aspx?Page=185

The 2013 conforming loan limits for first mortgages remain at the limits set in 2006, 2007, 2008, 2010 and 2011:


ARM vs, what is an adjustable rate mortgage.#What #is #an #adjustable #rate #mortgage


Choosing between an adjustable-rate and fixed-rate mortgage

What is an adjustable rate mortgage

Chris Hackett/Getty Images

Which is the better mortgage option for you: fixed or adjustable?

The low initial cost of adjustable-rate mortgages, or ARMs, can be tempting to homebuyers, yet they carry a degree of uncertainty.

Fixed-rate mortgages offer rate and payment security, but they can be more expensive.

Here are some pros and cons of adjustable-rate and fixed-rate mortgages.

Adjustable-rate mortgages

  • Feature lower rates and payments early on in the loan term. Because lenders can use the lower payment when qualifying borrowers, people can buy larger homes than they otherwise could buy.
  • Allow borrowers to take advantage of falling rates without refinancing. Instead of having to pay a whole new set of closing costs and fees, ARM borrowers just sit back and watch the rates — and their monthly payments — fall.
  • Help borrowers save and invest more money. Someone who has a payment that’s $100 less with an ARM can save that money and earn more off it in a higher-yielding investment.
  • Offer a cheaper way for borrowers who don’t plan on living in one place for very long to buy a house.
  • Rates and payments can rise significantly over the life of the loan. A 4 percent ARM can end up at 9 percent in just three years if rates rise sharply.
  • The first adjustment can be a doozy because some annual caps don’t apply to the initial change. Someone with a lifetime cap of 6 percent could theoretically see the rate shoot from 4 percent to 10 percent a year after closing if rates in the overall economy skyrocket.
  • ARMs are difficult to understand. Lenders have much more flexibility when determining margins, caps, adjustment indexes and other things, so unsophisticated borrowers can easily get confused or trapped by shady mortgage companies.
  • On certain ARMs, called negative amortization loans, borrowers can end up owing more money than they did at closing. That’s because the payments on these loans are set so low (to make the loans even more affordable) that they cover only part of the interest due. The remainder gets rolled into the principal balance.

Fixed-rate mortgages

  • Rates and payments remain constant, despite what happens in the broader economy.
  • Stability makes budgeting easier. People can manage their money with more certainty because their housing payments don’t change.
  • Simple to understand, so they’re good for first-time buyers who wouldn’t know a 7/1 ARM with 2/6 caps if it hit them over the head.
  • To take advantage of lower rates, fixed-rate mortgage holders have to refinance. That means a few thousand dollars in closing costs, another trip to the title company’s office and several hours spent digging up tax forms, bank statements, etc.
  • Can be too expensive for some borrowers because there is no early-on payment and rate break.
  • Are virtually identical from lender to lender. While lenders keep many ARMs on their books, most financial institutions sell their fixed-rate mortgages on the secondary market. As a result, ARMs can be customized for individual borrowers, while most fixed-rate mortgages can’t.

All of these things should factor into your decision between a fixed-rate mortgage and an adjustable. But there are other important questions to answer when deciding which loan is better for you:

1. How long do you plan on staying in the home?

If you’re going to be living in the house only a few years, it would make sense to take the lower-rate ARM, especially if you can get a reasonably priced 3/1 or 5/1. Your payment and rate will be low, and you can build up savings for a bigger home down the road. Plus, you’ll never be exposed to huge rate adjustments because you’ll be moving before the adjustable rate period begins.

2. How frequently does the ARM adjust, and when is the adjustment made?

After the initial, fixed period, most ARMs adjust every year on the anniversary of the mortgage. The new rate is actually set about 45 days before the anniversary, based on the specified index. But some adjust as frequently as every month. If that’s too much volatility for you, go with a fixed-rate mortgage.

3. What’s the interest rate environment like?

When rates are relatively high, ARMs make sense because their lower initial rates allow borrowers to still reap the benefits of homeownership. When rates are falling, borrowers have a decent chance of getting lower payments even if they don’t refinance. When rates are relatively low, however, fixed-rate mortgages make more sense.

4. Could you still afford your monthly payment if interest rates rise significantly?

On a $150,000 one-year adjustable-rate mortgage with 2/6 caps, your 5.75 percent ARM could end up at 11.75 percent, with the monthly payment shooting up as well.


What is an adjustable rate mortgage, what is an adjustable rate mortgage.#What #is #an #adjustable


15/15 Jumbo Adjustable Rate Mortgage

Get great value without the risk. Feel secure with a plan that changes just once, after 15 years.

Apply before becoming a member.

After your application, we’ll help you:

1. Discover you’re eligible to become a PenFed member

2. Open a Savings/Share Account and deposit at least $5

OUR GREAT RATES

*Payments shown do not include taxes or insurance, actual payments may be greater. Rates and offers are in effect as of for new applications only, for a limited time, and subject to change without notice. Example based on $ loan. Other restrictions apply. Rate is variable and can increase by no more than 6 percentage points every 15 years ( % for this example). Since the index in the future is unknown, the First Adjustment Payments displayed are based on the current index plus margin (fully indexed rate) as of the date above.

Features Benefits

  • Lower initial monthly payment
  • High loan limits (over $424,100)
  • Free 60 day rate lock
  • Eligible for PenFed Real Estate Rewards
  • For home purchases or refinancing
  • Available for loans greater than $ up to $2 million
  • For the first 15 year term the interest rate and initial payments are generally lower than those of a comparable 30-year fixed rate loan
  • Offers available on primary and secondary homes

What is an adjustable rate mortgage

REAL ESTATE REWARDS

Save 1.5% of your loan amount – up to $10,000 – when buying your next home.

Disclosures

Investment properties not eligible for offers.

All Adjustable Rate Mortgage Programs: The application of additional loan level pricing adjustments will be determined by various loan attributes to include but not limited to the loan-to-value (LTV) ratio, credit score, transaction type, property type, product type, occupancy, and subordinate financing.

15/15 ARM: Available on purchases and refinances. Not available for applications without a property address (pre-purchase). The initial rate is fixed for 15 years (180 months). When the rate adjusts, your new rate will be the then current index (weekly average yield on US Treasury securities adjusted to a constant maturity of 10 years) plus a margin of two percent (2.000%) rounding to the nearest one-eighth (0.125%). The new rate cannot exceed percent ( .000%) above the initial rate or cannot be lower than the floor rate of percent ( .000%).

Jumbo Mortgages: For loan amounts above $ to $ . The maximum loan-to-value (LTV) is 80% and the maximum combined loan-to-value (CLTV) is 90%. The maximum LTV and CLTV for condominiums is 80%.

For purchase applications, please submit a copy of your fully signed ratified purchase agreement to [email protected] in a timely manner to ensure PenFed can meet your closing date.

The applicant is responsible for the following fees and costs at the time of closing. Origination fee, appraisal fee, tax service fee, CLO access fee, title fees, transfer tax fees, credit report fee, flood cert fee, recording fee, survey if required and work verification fee, escrow reserves and interest due until first payment, other cost may be included due to program specific circumstances. This is not intended to be an all-inclusive list.

Escrows may be waived if LTV is 80% or less in all states.

Additional reserve requirements may apply.

If you withdraw an application that was locked and reapply within 30 days, the new application is subject to worst case pricing.

All above disclosures apply to non-Veteran’s Administration (VA) loans. VA loans have different guidelines and eligibility requirements.

All rates and offers are in effect as of , offered for a limited time and subject to change without notice. Other restrictions may apply. Contact your PenFed mortgage consultant for any applicable additional restrictions and details about your loan. To receive any advertised product you must become a member of PenFed by opening a share (savings) account. Federally insured by the NCUA.

We do business in accordance with the Federal Fair Housing Law and the Equal Credit Opportunity Act.

ARM vs Fixed Rate Mortgages: Which One Should You Choose?

What is an adjustable rate mortgage

With mortgage interest rates at an all-time low you’re probably thinking about finally taking the big leap and becoming a homeowner or refinancing your existing home to a lower interest rate. However, the age-old question looms in front of you…which mortgage should I choose, an ARM or a fixed-rate mortgage?

The answer: it depends on your needs. While there are pros and cons to both mortgages, the real question is not which mortgage is better, but which mortgage will suit my needs.

Let’s take a look at both an ARM and fixed-rate mortgage and then you can decide which option is going to afford you your dream home or that tantalizing interest rate that will have you running to refinance your home.

Adjustable-Rate Mortgages

Adjustable-rate mortgages or ARMs have interest rates that adjust over a period of time. ARMs have had a notoriously bad reputation because of the mortgage meltdown and subsequent recession.

While this reputation was justified in the past, most of those exotic ARMs no longer exist. Today, financial institutions offer hybrid ARMs—like PenFed’s 5/5 ARM, which has a fixed-rate for five years and then the rate adjusts once every five years. This is a unique mortgage product as most ARMs adjust annually after the initial fixed terms.

The thought of an adjustable interest rate probably has you fearing skyrocketing monthly mortgage payments. Fear not, all ARMs have caps—a limit on the amount the interest rate can adjust—and ceilings—the highest the interest rate is allowed to become during the life of the loan. Using PenFed’s 5/5 ARM as an example, the initial interest rate will change every five years by no more than two percentage points up or down (the cap). This rate will never exceed five percentage points above the initial rate (the ceiling).

Fixed-Rate Mortgages

A fixed-rate mortgage provides a reliable and fixed monthly payment for the life of the loan. Because your total mortgage payment remains stable from month to month, homeowners can easily budget their monthly expenses.

Financial institutions offer various fixed-rate mortgages including the more common fixed-rate mortgages: 15, 20, and 30-year. Out of the three the 30-year fixed is the most popular mortgage because it usually offers the lowest monthly payment. However, the lower monthly payment comes at a cost of paying more in interest over the life of the loan.

Some Considerations

So, now that you know a little more about ARMs and fixed-rate mortgages here are a few things you should consider when making a decision about which mortgage will best suit your needs:

  • How long do you plan to stay in your home? If you don’t plan to stay in your home for the long haul, you may want to consider an ARM, which has a lower interest rate than the 30-year fixed and you save big money in interest charges. If you move or refinance within five years before the interest rate adjusts you can avoid a payment hike. Conversely, if you’ve found or are already in the home of your dreams, a fixed-rate mortgage makes more sense and will provide you stable payments for years to come.
  • What can you afford? Knowing how much you can afford to pay month to month in mortgage payments will also help you decide between an ARM or fixed-rate mortgage. If you’re working within a tight budget, the ARM may be a more attractive option since the payments will be lower than a 30-year fixed. But, unless you anticipate a raise or another source of added income, ask yourself if you’ll be able to afford your mortgage payment when the ARM’s interest rate increases. If not, don’t take the risk. Go with the fixed-rate mortgage and get stable monthly payments.

The Takeaway: When it’s all said and done, the goal is to get you into the home of your dreams or refinance your existing home without breaking your pockets. Both the ARM and fixed-rate mortgage are products that will help you reach your goal. However, the path you take to get to your goal depends on which mortgage will suit your needs.

What is an adjustable rate mortgage

The credit union is federally insured by the National Credit Union Association.


What is an adjustable rate mortgage, what is an adjustable rate mortgage.#What #is #an #adjustable


15/15 Jumbo Adjustable Rate Mortgage

Get great value without the risk. Feel secure with a plan that changes just once, after 15 years.

Apply before becoming a member.

After your application, we’ll help you:

1. Discover you’re eligible to become a PenFed member

2. Open a Savings/Share Account and deposit at least $5

OUR GREAT RATES

*Payments shown do not include taxes or insurance, actual payments may be greater. Rates and offers are in effect as of for new applications only, for a limited time, and subject to change without notice. Example based on $ loan. Other restrictions apply. Rate is variable and can increase by no more than 6 percentage points every 15 years ( % for this example). Since the index in the future is unknown, the First Adjustment Payments displayed are based on the current index plus margin (fully indexed rate) as of the date above.

Features Benefits

  • Lower initial monthly payment
  • High loan limits (over $424,100)
  • Free 60 day rate lock
  • Eligible for PenFed Real Estate Rewards
  • For home purchases or refinancing
  • Available for loans greater than $ up to $2 million
  • For the first 15 year term the interest rate and initial payments are generally lower than those of a comparable 30-year fixed rate loan
  • Offers available on primary and secondary homes

What is an adjustable rate mortgage

REAL ESTATE REWARDS

Save 1.5% of your loan amount – up to $10,000 – when buying your next home.

Disclosures

Investment properties not eligible for offers.

All Adjustable Rate Mortgage Programs: The application of additional loan level pricing adjustments will be determined by various loan attributes to include but not limited to the loan-to-value (LTV) ratio, credit score, transaction type, property type, product type, occupancy, and subordinate financing.

15/15 ARM: Available on purchases and refinances. Not available for applications without a property address (pre-purchase). The initial rate is fixed for 15 years (180 months). When the rate adjusts, your new rate will be the then current index (weekly average yield on US Treasury securities adjusted to a constant maturity of 10 years) plus a margin of two percent (2.000%) rounding to the nearest one-eighth (0.125%). The new rate cannot exceed percent ( .000%) above the initial rate or cannot be lower than the floor rate of percent ( .000%).

Jumbo Mortgages: For loan amounts above $ to $ . The maximum loan-to-value (LTV) is 80% and the maximum combined loan-to-value (CLTV) is 90%. The maximum LTV and CLTV for condominiums is 80%.

For purchase applications, please submit a copy of your fully signed ratified purchase agreement to [email protected] in a timely manner to ensure PenFed can meet your closing date.

The applicant is responsible for the following fees and costs at the time of closing. Origination fee, appraisal fee, tax service fee, CLO access fee, title fees, transfer tax fees, credit report fee, flood cert fee, recording fee, survey if required and work verification fee, escrow reserves and interest due until first payment, other cost may be included due to program specific circumstances. This is not intended to be an all-inclusive list.

Escrows may be waived if LTV is 80% or less in all states.

Additional reserve requirements may apply.

If you withdraw an application that was locked and reapply within 30 days, the new application is subject to worst case pricing.

All above disclosures apply to non-Veteran’s Administration (VA) loans. VA loans have different guidelines and eligibility requirements.

All rates and offers are in effect as of , offered for a limited time and subject to change without notice. Other restrictions may apply. Contact your PenFed mortgage consultant for any applicable additional restrictions and details about your loan. To receive any advertised product you must become a member of PenFed by opening a share (savings) account. Federally insured by the NCUA.

We do business in accordance with the Federal Fair Housing Law and the Equal Credit Opportunity Act.

ARM vs Fixed Rate Mortgages: Which One Should You Choose?

What is an adjustable rate mortgage

With mortgage interest rates at an all-time low you’re probably thinking about finally taking the big leap and becoming a homeowner or refinancing your existing home to a lower interest rate. However, the age-old question looms in front of you…which mortgage should I choose, an ARM or a fixed-rate mortgage?

The answer: it depends on your needs. While there are pros and cons to both mortgages, the real question is not which mortgage is better, but which mortgage will suit my needs.

Let’s take a look at both an ARM and fixed-rate mortgage and then you can decide which option is going to afford you your dream home or that tantalizing interest rate that will have you running to refinance your home.

Adjustable-Rate Mortgages

Adjustable-rate mortgages or ARMs have interest rates that adjust over a period of time. ARMs have had a notoriously bad reputation because of the mortgage meltdown and subsequent recession.

While this reputation was justified in the past, most of those exotic ARMs no longer exist. Today, financial institutions offer hybrid ARMs—like PenFed’s 5/5 ARM, which has a fixed-rate for five years and then the rate adjusts once every five years. This is a unique mortgage product as most ARMs adjust annually after the initial fixed terms.

The thought of an adjustable interest rate probably has you fearing skyrocketing monthly mortgage payments. Fear not, all ARMs have caps—a limit on the amount the interest rate can adjust—and ceilings—the highest the interest rate is allowed to become during the life of the loan. Using PenFed’s 5/5 ARM as an example, the initial interest rate will change every five years by no more than two percentage points up or down (the cap). This rate will never exceed five percentage points above the initial rate (the ceiling).

Fixed-Rate Mortgages

A fixed-rate mortgage provides a reliable and fixed monthly payment for the life of the loan. Because your total mortgage payment remains stable from month to month, homeowners can easily budget their monthly expenses.

Financial institutions offer various fixed-rate mortgages including the more common fixed-rate mortgages: 15, 20, and 30-year. Out of the three the 30-year fixed is the most popular mortgage because it usually offers the lowest monthly payment. However, the lower monthly payment comes at a cost of paying more in interest over the life of the loan.

Some Considerations

So, now that you know a little more about ARMs and fixed-rate mortgages here are a few things you should consider when making a decision about which mortgage will best suit your needs:

  • How long do you plan to stay in your home? If you don’t plan to stay in your home for the long haul, you may want to consider an ARM, which has a lower interest rate than the 30-year fixed and you save big money in interest charges. If you move or refinance within five years before the interest rate adjusts you can avoid a payment hike. Conversely, if you’ve found or are already in the home of your dreams, a fixed-rate mortgage makes more sense and will provide you stable payments for years to come.
  • What can you afford? Knowing how much you can afford to pay month to month in mortgage payments will also help you decide between an ARM or fixed-rate mortgage. If you’re working within a tight budget, the ARM may be a more attractive option since the payments will be lower than a 30-year fixed. But, unless you anticipate a raise or another source of added income, ask yourself if you’ll be able to afford your mortgage payment when the ARM’s interest rate increases. If not, don’t take the risk. Go with the fixed-rate mortgage and get stable monthly payments.

The Takeaway: When it’s all said and done, the goal is to get you into the home of your dreams or refinance your existing home without breaking your pockets. Both the ARM and fixed-rate mortgage are products that will help you reach your goal. However, the path you take to get to your goal depends on which mortgage will suit your needs.

What is an adjustable rate mortgage

The credit union is federally insured by the National Credit Union Association.


Adjustable Rate Mortgage (ARM), Quicken Loans, what is an adjustable rate mortgage.#What #is #an #adjustable


Adjustable Rate Mortgage

What is an adjustable rate mortgage

With Rocket Mortgage by Quicken Loans, our fast, powerful and completely online way to get a mortgage, you can find out which loan option is right for you.

Not comfortable starting online? Answer a few questions, and we ll have a Home Loan Expert call you.

Key Benefits

Get a mortgage rate as low as 3.50% (4.148% APR) with the 5-year adjustable rate mortgage.

  • Do you want to significantly reduce the cost of your mortgage?
  • Do you plan to move or refinance in the next 5, 7 or 10 years?
  • Do you want the lowest mortgage rate available?

If you answered yes to any of these questions, an adjustable rate mortgage might be right for you! Whether you choose the 5-year, the 7-year or the 10-year adjustable rate mortgage, you’ll get the lowest rate we offer and save thousands over a traditional fixed-rate mortgage during the initial fixed-rate period. Afterwards, the rate may change once per year.

Why you should choose Quicken Loans

  • Only Quicken Loans offers you the Closing Cost Cutter and PMI Advantage. Find out how these great options can help guide you to the best decision to meet your financial goals.
  • With more than 32 years of experience, we’ve designed a mortgage process that adapts to your needs.
  • Our powerful online tools, like MyQL Mobile, allow us to close your loan quickly. This app is exclusive to Quicken Loans clients and works with iPhone ® and Android™!

Other loans you might be interested in:

How It Works

Adjustable rate mortgage qualification requirements

  • Refinance up to 95% of your primary home’s value
  • Buy a home with as little as 5% down (primary home)

ARM Calculator: Adjustable Rate Home Loan Calculator: Estimate 3, what is an arm mortgage.#What #is


Adjustable Rate Mortgage Calculator

Thinking of getting a variable rate loan? Use this tool to figure your expected monthly payments before and after the reset period.

Current ARM Mortgage Rates

Understanding Adjustable-Rates

The U.S. has always been the world capital of consumer choice. Visitors are often overwhelmed by the variety offered in our stores, supermarkets, and service industries. And the mortgage game is no different.

When making a major purchase like a home or RV, Americans have many different borrowing options at their fingertips, such as a fixed-rate mortgage or an adjustable-rate mortgage.

Almost everywhere else in the world, homebuyers have only one real option, the ARM (which they call a variable-rate mortgage).

What Are Adjustable Rate Mortgages?

An ARM is a loan with an interest rate that is adjusted periodically to reflect the ever-changing market conditions.

Usually, the introductory rate lasts a set period of time and adjusts every year afterward until the loan is paid off. An ARM lasts a total of thirty years, and after the set introductory period, your interest cost and your monthly payment will change.

Of course, no one knows the future, but a fixed can help you prepare for it, no matter how the tides turn. If you use an ARM it is harder to predict what your payments will be.

You can predict a rough range of how much your monthly payments will go up or down based on two factors, the index and the margin. While the margin remains the same for the duration of the loan, the index value varies. An index is a frame of reference interest rate published regularly. It includes indexes like U.S. Treasury T-Bills, the 11th District Cost of Funds Index (COFI), and the London Interbank Offered Rate (LIBOR).

Adjustable-Rates vs. Fixed-Rates

What is an arm mortgageEvery potential homebuyer faces this decision, and there are pros and cons to both kinds of mortgages. What you plan to do both in the near and distant future determines which loan arrangement will be best for you.

The APR of a fixed-rate mortgage (FRM) remains the same for the life of the loan, and most homeowners like the security of locking in a set rate and the ease of a payment schedule that never changes. However, if rates drop dramatically, an FRM would need to be re-financed to take advantage of the shift, and that isn’t easy at all.

An ARM is more of a roller coaster ride that you put your whole house on. It fluctuates with the real estate market and with the economy in general. The sweet five percent deal you have today could shoot up to eight percent if LIBOR goes up.

What Are The Common Reset Points?

The reset point is the date your ARM changes from the introductory rate to the adjustable-rate based on market conditions. Many consumers wrongly believe this honeymoon period of having a preset low monthly payment needs to be as short as it is sweet.

But nowadays, it is not uncommon to set mortgage reset points years down the road. Reset points are typically set between one and five years ahead. Here are examples of the most popular mortgage reset points:

  • 1 Year ARM – Your APR resets every year.
  • 3/1 ARM – Your APR is set for three years, then adjusts for the next 27 years.
  • 5/1 ARM – Your APR is set for five years, then adjusts for the next 25 years.
  • 7/1 ARM – Your APR is set for seven years, then adjusts for the next 23 years.
  • 10/1 ARM – Your APR is set for ten years, then adjusts for the next 20 years.

What is the Difference Between a Standard ARM Loan and Hybrid ARMs?

A hybrid ARM has a honeymoon period where rates are fixed. Typically it is 5 or 7 years, though in some cases it may last either 3 or 10 years.

Some hybrid ARM loans also have less frequent rate resets after the initial grace period. For example a 5/5 ARM would be an ARM loan which used a fixed rate for 5 years in between each adjustment.

A standard ARM loan which is not a hybrid ARM either resets once per year every year throughout the duration of the loan or, in some cases, once every 6 months throughout the duration of the loan.

What do Rates Reset Against?

ARMs are typically tied to one of the following 3 indexes:

  • London Interbank Offered Rate (LIBOR) – The rate international banks charge one another to borrow.
  • 11th District Cost of Funds Index (COFI) – The rate banks in the western U.S. pay depositors.
  • Constant maturity yield of one-year Treasury bills – The U.S. Treasury yield, as tracked by the Federal Reserve Board.

Who Are ARMS Good For?

Adjustable-rate mortgages are not for everyone, but they can look very attractive to people who are either planning to move out of the house in a few years or those who are counting on a significant raise in income in the near future.

Basically, if your reset point is seven years away and you plan to move out of the house before then, you can manage to get out of Dodge before the costlier payment schedule kicks in.

Others who will benefit greatly from the flexibility of an ARM are people who expect a sizeable raise, promotion, or expansion in their careers. They can afford to buy a bigger house right now, and they will have more money to work with in the future when the reset date arrives. When the reset happens if rates haven’t moved up they can refinance into a FRM.

Who Are ARMS Bad For?

ARMs are bad for worrywarts. If life’s little uncertainties make you feel queasy, you may worry about the future of interest rates every waking moment. But don’t worry – you won’t end up losing the farm (or your signed Don Drysdale baseball card) because ARMs have caps on them.

A cap is a ceiling, or a limit on the amount your loan rate can increase annually for the duration of the loan. Adjustable-rate mortgage caps are usually set between two and five percent, and they carry a maximum yearly increase of two percent.

That is not exactly risky proposition, but it can appear so to a non-gambler.

You can run the numbers in advance to estimate the monthly cost at different APRs. Our above calculator does this automatically based on the cap you enter.

Compare Your Options

What is an arm mortgageCompare IO ARMs or fixed, adjustable interest-only loans side by side. What is an arm mortgage

Avantages And Disadvantages

  • Lower payments and rates early in the loan term, allowing borrowers to buy larger, more expensive homes.
  • ARM holders can take advantage of falling rates without lifting a finger, avoiding the inconvenience and high cost of refinancing, including a new set of closing costs and transaction fees.
  • It’s an affordable way for borrowers with limited funds to buy a house if they don’t plan on living in one place for a long time.
  • Rates and monthly payments can rise dramatically over the course of a 30-year commitment. A six percent ARM can skyrocket to eleven percent in as little as three years.
  • The first adjustment after your initial set period can be more shocking than any sticker you’ve ever seen because annual caps sometimes don’t apply to the first payments after the reset point arrives. Be sure to read the small print!
  • ARMs are complex agreements, and novice borrowers can easily be misled and bamboozled by slick talk about margins, caps, ARM indexes, and other industry jargon – particularly if the lender is somewhat shady.

Borrower Beware

ARMs are not for the faint-hearted. They offer a better life to those who want lower payments now in exchange for spending more down the road. But make no mistake, your monthly payments will likely increase when your rate is adjusted.

You must be prepared financially for the end of the honeymoon. Because caps often don’t apply to the one-time initial adjustment, you could see a worst-case scenario of your six percent rate adjusting to ten or twelve percent a year if interest rates in the overall economy shoot up.

If you found this guide helpful you may want to consider reading our comprehensive guide to adjustable-rate mortgages.

You can also download an ARM loan worksheet bring it to your financial institution. We offer versions in the following formats: PDF, Word Excel.


Types of Loan Programs: Conforming, Jumbo Loans, FRM, ARM, Balloon Mortgage, what is an adjustable


what is an adjustable rate mortgage

What is an adjustable rate mortgage

What is an adjustable rate mortgage

What is an adjustable rate mortgage

What is an adjustable rate mortgage

Types of Mortgage Loans

Conventional and Government Loans

Any mortgage loan other than an FHA, VA or an RHS loan is conventional one.

The Federal Housing Administration (FHA), which is part of the U.S. Dept. of Housing and Urban Development (HUD), administers various mortgage loan programs. FHA loans have lower down payment requirements and are easier to qualify than conventional loans. FHA loans cannot exceed the statutory limit. Go to FHA Programs page to get more information.

If you are looking for an FHA home loan right now, please feel free to request personalized rate quotes from HUD-approved mortgage lenders via our website.

VA loans are guaranteed by U.S. Dept. of Veterans Affairs. The guaranty allows veterans and service persons to obtain home loans with favorable loan terms, usually without a down payment. In addition, it is easier to qualify for a VA loan than a conventional loan. Lenders generally limit the maximum VA loan to $203,000. The U.S. Department of Veterans Affairs does not make loans, it guarantees loans made by lenders. VA determines your eligibility and, if you are qualified, VA will issue you a certificate of eligibility to be used in applying for a VA loan.

VA-guaranteed loans are obtained by making application to private lending institutions. If you are interesting in obtaining a VA-guaranteed loan you can try our VA loan request form.

Please see also pamphlets published by VA.

RHS Loan Programs

The Rural Housing Service (RHS) of the U.S. Dept. of Agriculture guarantees loans for rural residents with minimal closing costs and no downpayment. Visit our page RHS programs for details.

Ginnie Mae which is part of HUD guarantees securities backed by pools of mortgage loans insured by these three federal agencies – FHA, or VA, or RHS. Securities are sold through financial institutions that trade government securities.

State and Local Housing Programs

Many states, counties and cities provide low to moderate housing finance programs, down payment assistance programs, or programs tailored specifically for a first time buyer. These programs are typically more lenient on the qualification guidelines and often designed with lower upfront fees. Also, there are often loan assistance programs offered at the local or state level such as MCC (Mortgage Credit Certificate) which allows you a tax credit for part of your interest payment. Most of these programs are fixed rate mortgages and have interest rates lower than the current market.

Conventional loans may be conforming and non-conforming. Conforming loans have terms and conditions that follow the guidelines set forth by Fannie Mae and Freddie Mac. These two stockholder-owned corporations purchase mortgage loans complying with the guidelines from mortgage lending institutions, packages the mortgages into securities and sell the securities to investors. By doing so, Fannie Mae and Freddie Mac, like Ginnie Mae, provide a continuous flow of affordable funds for home financing that results in the availability of mortgage credit for Americans.

Fannie Mae and Freddie Mac guidelines establish the maximum loan amount, borrower credit and income requirements, down payment, and suitable properties. Fannie Mae and Freddie Mac announces new loan limits every year.

The national conforming loan limit for mortgages that finance single-family one-unit properties increased from $33,000 in the early 1970s to $417,000 for 2006-2008, with limits 50 percent higher for four statutorily-designated high cost areas: Alaska, Hawaii, Guam, and the U.S. Virgin Islands. Since early 2008, a series of legislative acts have temporarily increased the one-unit limit to up to $729,750 in certain high-cost areas in the contiguous United States. Permanent limits, which apply to the Enterprises’ acquisitions of certain mortgages originated prior to July 1, 2007, are set under the terms of the Housing and Economic Recovery Act of 2008 (HERA).

For every county and county-equivalent in the country, maximum loan limits for mortgages can be found at: http://www.fhfa.gov/Default.aspx?Page=185

The 2013 conforming loan limits for first mortgages remain at the limits set in 2006, 2007, 2008, 2010 and 2011:


ARM vs, what is an adjustable rate mortgage.#What #is #an #adjustable #rate #mortgage


Choosing between an adjustable-rate and fixed-rate mortgage

What is an adjustable rate mortgage

Chris Hackett/Getty Images

Which is the better mortgage option for you: fixed or adjustable?

The low initial cost of adjustable-rate mortgages, or ARMs, can be tempting to homebuyers, yet they carry a degree of uncertainty.

Fixed-rate mortgages offer rate and payment security, but they can be more expensive.

Here are some pros and cons of adjustable-rate and fixed-rate mortgages.

Adjustable-rate mortgages

  • Feature lower rates and payments early on in the loan term. Because lenders can use the lower payment when qualifying borrowers, people can buy larger homes than they otherwise could buy.
  • Allow borrowers to take advantage of falling rates without refinancing. Instead of having to pay a whole new set of closing costs and fees, ARM borrowers just sit back and watch the rates — and their monthly payments — fall.
  • Help borrowers save and invest more money. Someone who has a payment that’s $100 less with an ARM can save that money and earn more off it in a higher-yielding investment.
  • Offer a cheaper way for borrowers who don’t plan on living in one place for very long to buy a house.
  • Rates and payments can rise significantly over the life of the loan. A 4 percent ARM can end up at 9 percent in just three years if rates rise sharply.
  • The first adjustment can be a doozy because some annual caps don’t apply to the initial change. Someone with a lifetime cap of 6 percent could theoretically see the rate shoot from 4 percent to 10 percent a year after closing if rates in the overall economy skyrocket.
  • ARMs are difficult to understand. Lenders have much more flexibility when determining margins, caps, adjustment indexes and other things, so unsophisticated borrowers can easily get confused or trapped by shady mortgage companies.
  • On certain ARMs, called negative amortization loans, borrowers can end up owing more money than they did at closing. That’s because the payments on these loans are set so low (to make the loans even more affordable) that they cover only part of the interest due. The remainder gets rolled into the principal balance.

Fixed-rate mortgages

  • Rates and payments remain constant, despite what happens in the broader economy.
  • Stability makes budgeting easier. People can manage their money with more certainty because their housing payments don’t change.
  • Simple to understand, so they’re good for first-time buyers who wouldn’t know a 7/1 ARM with 2/6 caps if it hit them over the head.
  • To take advantage of lower rates, fixed-rate mortgage holders have to refinance. That means a few thousand dollars in closing costs, another trip to the title company’s office and several hours spent digging up tax forms, bank statements, etc.
  • Can be too expensive for some borrowers because there is no early-on payment and rate break.
  • Are virtually identical from lender to lender. While lenders keep many ARMs on their books, most financial institutions sell their fixed-rate mortgages on the secondary market. As a result, ARMs can be customized for individual borrowers, while most fixed-rate mortgages can’t.

All of these things should factor into your decision between a fixed-rate mortgage and an adjustable. But there are other important questions to answer when deciding which loan is better for you:

1. How long do you plan on staying in the home?

If you’re going to be living in the house only a few years, it would make sense to take the lower-rate ARM, especially if you can get a reasonably priced 3/1 or 5/1. Your payment and rate will be low, and you can build up savings for a bigger home down the road. Plus, you’ll never be exposed to huge rate adjustments because you’ll be moving before the adjustable rate period begins.

2. How frequently does the ARM adjust, and when is the adjustment made?

After the initial, fixed period, most ARMs adjust every year on the anniversary of the mortgage. The new rate is actually set about 45 days before the anniversary, based on the specified index. But some adjust as frequently as every month. If that’s too much volatility for you, go with a fixed-rate mortgage.

3. What’s the interest rate environment like?

When rates are relatively high, ARMs make sense because their lower initial rates allow borrowers to still reap the benefits of homeownership. When rates are falling, borrowers have a decent chance of getting lower payments even if they don’t refinance. When rates are relatively low, however, fixed-rate mortgages make more sense.

4. Could you still afford your monthly payment if interest rates rise significantly?

On a $150,000 one-year adjustable-rate mortgage with 2/6 caps, your 5.75 percent ARM could end up at 11.75 percent, with the monthly payment shooting up as well.


Pay-Option Arm Mortgages, The Truth About, what is an arm mortgage.#What #is #an #arm #mortgage


Option Arm Mortgages

What is an arm mortgage

The option arm loan program was one of the most popular mortgage choices for borrowers in the United States during the lead up to the mortgage crisis thanks to its forgiving payment flexibility.

This same payment flexibility also made it one of the most scrutinized loan programs in history because of its misleading ability to qualify borrowers for a home they truly couldn t afford.

It was offered by some of the biggest former mortgage lenders, including Countrywide Mortgage and Washington Mutual, both of which failed during the Great Recession. I believe Bear Stearns also offered the product. They also failed.

What Is An Option Arm?

The option arm, or pick-a-pay mortgage, is a monthly adjustable rate mortgage tied to one of the major mortgage indexes, including the LIBOR, MTA, or COFI. The program allows a borrower to pay off their loan balance using four payment options, including the following:

15 year term payment (Principal and interest)

30 year term payment (Principal and interest)

Interest-only payment (Usually available first 10 years)

Minimum monthly payment (Negative amortization payment)

In other words, borrowers can make the standard 30-year fixed payment, an accelerated 15-year fixed payment, a 30-year interest-only payment, or a negative amortization payment.

That last option was what got a lot of homeowners into a lot of trouble. It allowed homeowners to pay less than the total amount of interest due, thereby pushing many borrowers into an underwater position.

Most Option Arm Holders Make the Minimum Payment

Most borrowers select the option arm for the minimum payment option, otherwise known as the negative amortization option. The minimum payment option allows a borrower to pay monthly mortgage payments that are significantly less than the actual interest rate.

The minimum payment on most option arm programs is 1% fully amortized. It seems like a great deal, but every time the borrower elects to makes the minimum payment, the difference between the minimum payment and the interest-only payment is tacked onto the balance of the loan.

A borrower can pay the minimum payment until the loan balance reaches 110-115% of the original loan balance, depending upon the rules of the issuing bank or mortgage lender. This allows the typical borrower to pay the minimum payment for roughly the first five years of the life of the loan.

After the borrower reaches 110-115% of the original loan balance (110-115 LTV), they will lose the minimum payment option, leaving them with the three remaining payment options. After ten years from the start of the loan, the interest-only option typically goes away as well, and the borrower must pay using one of the two remaining payment options.

Typical option arm programs do not have any caps aside from the lifetime cap of say 9.95%, and the minimum payment generally increases 7.5% each year until it is no longer an available option.

You re Deferring Interest with an Option Arm

What many borrowers may not understand is that paying the minimum payment each month is simply a way of deferring interest, not avoiding it altogether. By making the minimum payment each month, the accrued interest eventually stacks up against the borrower, while effectively building zero home equity.

And after five years of paying the minimum payment, the borrower would have a loan balance above their original balance without the flexibility of the minimum payment option.

This makes the option arm a dangerous choice for homeowners, as once the minimum payment option disappears the borrower has no choice but to pay the interest-only payment. And many borrowers will likely have trouble making the interest-only payment after relying on a much lower minimum payment during earlier years.

The only saving grace to this program is housing appreciation and leverage. While the market was hot, real estate investors were using option-arms to keep cash in their pockets, banking on appreciation until they resold the home years, or even months later.

But once every one and their mother was using this type of loan, trouble started brewing. It probably should have never been introduced to the masses.

1 Month LIBOR index: 5.330

Fully indexed rate: 7.980%

Loan amount: $400,000

15 year term payment (Principal and interest) = $3,817.99

30 year term payment (Principal and interest) = $2,929.48

Interest-only payment (Usually available first 10 years) = $2,660.00

Minimum monthly payment (Neg-am payment) = $1,286.56

Minimum monthly payment Year 1 = $1,286.56

Minimum monthly payment Year 2 = $1,383.05

Minimum monthly payment Year 3 = $1,486.78

Minimum monthly payment Year 4 = $1,598.29

Minimum monthly payment Year 5 = $1,718.16

Typical five-year interest-only adjustable rate mortgage at 6.75% is $2,250.00.

Monthly savings making the minimum payment = $963.44

As you can see, the minimum payment is dramatically lower than the interest-only payment, but it won t be around forever. And the minimum payment increases each year, as well as the accrued interest.

I ve seen a lot of lender commercials lately offering option-arm programs under the guise of names such as Super-Saver program and Smart Option . They tend to highlight the benefits, mainly the cost savings without mentioning the negative implications.

The newest option arm program now is the so-called assured option arm , also known as a five-year fixed option arm mortgage. It combines the safety of a five-year fixed product with the flexibility of an option arm. It can be useful for the same reasons I mentioned above, with the security of a fixed interest rate for a small time period. But it s still a risky loan product, and one that should be approached cautiously as well.

All that said, the option arm program definitely has the potential to save homeowners money, and keep money in their pocket during hard times, but it should be approached cautiously.

A loan officer or mortgage broker may recommend the option arm program as a way to keep your payments down, but if you don t feel you can make the interest-only payments in the future, and eventually the much higher fully amortized payment, it s probably best that you look for something more conventional.

If you can t make the fully amortized payment, you don t really qualify for the home loan. Bottomline.

Option Arms Banned Post-Crisis

In early 2014, the Consumer Financial Protection Bureau (CFPB) enacted the Qualified Mortgage (QM) rule, which required lenders to stop making mortgages with what they referred to as harmful loan features.

One of these features turned out to be negative amortization, meaning the option arm as we knew it was a thing of the past. Lenders get certain legal protections if they make loans that abide by the QM rule, and as such most loans are now QM loans.

However, it s still possible for a lender to offer a similar product in the future, but it s doubtful because they ll be assuming more risk. And we all know these are risky loans.

In summary, the option arm will go down in history as one of the most infamous loan programs of all time. One could easily argue that they did a lot more harm than good, and were probably one of the main reasons everything fell apart.


30-Year Fixed vs, what is an arm mortgage.#What #is #an #arm #mortgage


30-Year Fixed vs. 5/1 ARM

What is an arm mortgage

Here we go again…it’s that special time where I compare two popular loan programs to see how they stack up against each other. Today’s match-up: “30-year fixed vs. 5/1 ARM.”

Everyone has heard of the 30-year fixed-rate mortgage – it’s far and away the most popular type of loan out there. Why? Because it s the easiest to understand, and presents no risk of adjusting during the entire loan term.

But what about the 5/1 ARM? Do you even know what a 5/1 ARM is? What the heck is that slash doing there!? It looks confusing.

What is an arm mortgage

Put simply, the 5/1 ARM is an adjustable-rate mortgage with a 30-year term that’s fixed for the first five years and adjustable for the remaining 25 years. That means it s a hybrid ARM. Partially fixed, and partially adjustable.

After the first five years are up, the interest rate can adjust once annually, both up or down. That s the 5/1 broken down for you. Disregard that pesky slash.

It’s a pretty popular ARM product, if not the most popular. And just about all mortgage lenders offer it, including ING, via its Easy Orange Mortgage.

5/1 ARM Rates Are Lower. That s the Draw

What is an arm mortgage

Well, the biggest advantage to the 5/1 ARM is the fact that you get a lower mortgage rate than you would if you opted for a traditional 30-year fixed.

As you can see from the chart I created above, the 5/1 ARM is always cheaper than the 30-year fixed. That s the trade-off for that lack of mortgage rate stability.

But how much lower are 5/1 ARM rates? Currently, the spread is 0.63%, with the 30-year averaging 3.78 percent and the 5/1 ARM coming in at 3.15 percent, per Freddie Mac data.

Since Freddie began tracking the five-year ARM back in 2005, the spread has been as small as 0.27% and as large as 1.30% in 2011.

If the spread were only 0.25%, it d be hard to rationalize going with the uncertainty of the ARM. Conversely, if the spread were a full percentage point or higher, it d be pretty tempting to choose the ARM and save money for at least 60 months.

Let s look at an example of the potential savings:

Loan amount: $350,000

30-year fixed monthly payment: $1,626.87

5/1 ARM monthly payment: $1,504.08

So you’d be looking at a difference in monthly mortgage payment of roughly $122, or $1,464 annually ($7,320 over 5 years), using our example from above. Not bad, right?

You d also pay down your mortgage faster because more of each payment would go toward principal as opposed to interest. So you actually benefit twice. You pay less and your mortgage balance is smaller after five years.

After five years, the outstanding balance would be $315,427.87 versus $312,017.26 on the five-year ARM. That s roughly another $3,400 in savings for a total benefit of nearly $11,000.

Discussion over, the ARM wins! Right? Well, there’s just one little problem

It might not always be this good. In fact, you might only save money for the first five years of your 30-year loan.

After those initial five years are up, you could face an interest rate hike, meaning your 5/1 ARM could go from 3.25 percent to 4.50 percent or higher, depending on the associated margin and mortgage index.

ARMs Are Cheap But Will Likely Head Higher

Currently, mortgage indexes are super low, but they’re expected to rise in coming years as the economy gets back on track, which it will eventually.

And you should always prepare for a higher interest rate adjustment if you’ve got an ARM. In fact, lenders typically qualify you at a higher rate to ensure you can make more expensive payments in the future should your ARM adjust higher.

So that’s the big risk with the 5/1 ARM. If you don’t plan to sell or refinance before those first five years are up, the 30-year fixed may be the better choice.

Although, if you sell or refinance within say seven or eight years, the 5/1 ARM could still make sense given the savings realized during the first five years. And most people either sell or refinance within 10 years.

Just be sure you can actually handle a larger monthly mortgage payment should your rate adjust higher. And realize that refinancing won t always be an option you may not qualify, or rates may be too expensive to justify a refi. It s never a guarantee.

If you actually plan to pay off your mortgage, an ARM could be a bad idea unless you seriously luck out with rate adjustments. Or you serially refinance and pay extra to shorten the amortization period. Otherwise, there s a good chance you ll pay a lot more than you would have had you gone with the 30-year fixed.

Why? Because each time you refinance to another ARM, you re getting a brand new 30-year term. That means more interest is paid over a longer period of time, even if the rate is lower.

However, if you’re a savvy investor and have a healthy risk-appetite, the 5/1 ARM could mean some serious savings, especially if the extra money is invested somewhere else with a better return for your money.

Five years not enough for you? Check out the 30-year fixed vs. the 7-year ARM, which provides another two years of interest rate stability. The rate may not be as low, but you ll get a little more time before that first rate adjustment.