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Adjustable Rate
Mortgages
The rising
popularity of Adjustable Rate Mortgages is partly due to
today’s economic conditions. Rising income expectations,
higher interest rates both attribute to the necessity of
different financing options.
The
Adjustable Rate Mortgage has four key components to it,
which should be defined by your Lender when obtaining
financing:
q
Initial Interest
Rate, which can be an introductory
rate, will allow the borrower to qualify for more house or allow
lower payment in the initial stages of new homeownership.
q
Adjustment
Intervals will determine the time between when rate changes will
occur.
q
The Index
available on an Adjustable Rate Mortgage can come in
several different shapes or sizes. Some Examples are:
o
COFI (Cost of Funds
Index)
o
COSI (Cost of Savings
Index)
o
CODI (Cost of Deposit
Index)
o
One Year Treasury Bill
(T-Bill)
o
LIBOR (London Inter
Bank Offered Rate)
q
The Margin is
used as a starting point or a base in which the prescribed index
is added to, to determine what the rate will be at its
adjustment period.
In addition to
these key features, an
Adjustable Rate Mortgage can offer consumer safeguards,
which could be interest rate caps or payment caps. The
Smart Choice Loan offers a Lifetime Rate Cap as well as an
Annual payment cap.
The additional features
allowed on certain Adjustable Rate Mortgages can be assumed
ability and Convertibility. The Smart Choice Loan
offers the assumable feature, which makes it a very good product
to offer a potential buyer of your house if you decide to sell
it.
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