Compare Adjustable Rate Mortgages (ARMs) with Fixed
Rate Mortgages (FRMs) - Interest Only and Pick A Payment Loans - Alternative
March 22nd 2006
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There are many
choices in the mortgage marketplace, and it is important to choose
the right type of loan. Choosing the right loan could save you
thousands over the term of the loan.
There are a few
basic options including an adjustable rate mortgage (ARM) and a
fixed rate mortgage (FRM). The ARM can be a powerful tool,
sometimes offering borrowers lower initial payments. This makes it
easier for borrowers to qualify for larger loan sums.
If the borrower
expects interest rates to rise, a FRM may be better. If qualifying
for a loan is a problem, there are a couple things that can help
protect borrowers when choosing a ARM. For instance, if interest
rates do go up, you want to be able to cap your maximum interest
rate and also the amount your interest rate can increase per month.
Make sure your ARM includes both types of interest rate caps.
As home prices
soared so have the alternative financing options. According to the
Federal Trade Commission (FTC), in the year 2000 alternative
financing accounted for less than 1% of the financing. Today, they
comprise nearly half of new loans.
nontraditional loans include “interest-only” loans and payment
option adjustable rate mortgage (ARM) loans (or “pick-a-payment”
loans). These new mortgage products may benefit the consumer, but
there are some caveats. Alternative financing options have made it
possible for first time buyers to buy homes in a higher priced
market where a traditional mortgage would have failed. They may
also benefit consumers with uneven pattern of income or those
anticipating a rise in income.
It is important
to understand the details of the loan before you choose or sign on
the dotted line. According to the FTC, these loans could result in
“payment shock”. Also, some loans may yield a negative
amortization, meaning the loan balance could increase, not
By Dan Wilson
Keywords and misspelling: investmint investing intesters
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