Article Sphere Logo
 

Adjustable Rate Mortgages Terminology Can Be Confusing

By Expert Author: Charles Essmeier Platinum Expert Author | Article Abstract
Word Count: 456 words | Views: 705 view(s)
Buying and selling houses is a complicated business. If it weren't, it would not require the services of tax preparers, attorneys, appraisers, land surveyors and professional salesman. People who wanted to buy and sell property would just sell it like they would a used car. Unfortunately, buying and selling property is somewhat complicated, particularly when it comes to loans. Studies have shown that most homeowners understand fixed rate loans fairly well, but that many people are confused by adjustable rate loans.

A fixed-rate loans has a rate of interest that is applied to the loan principal. That interest rate never changes, even if the loan is issued for 30 years or more. Adjustable rate mortgages, on the other hand, have rates that can change as soon as one year after the loan is issued. How the rate changes, when the rate changes, and by how much the rate can change will vary dramatically from lender to lender and from loan to loan. These adjustable loans, known in the industry as an "ARM", have their own terminology, which can sometimes confuse buyers.

  • Index - A financial market indicator that is used by the lender to determine if a rate change should take place. Once selected, the same indicator will be used for the life of the loan.


  • Margin - The percentage added to the indicator's value to determine the interest for your loan. A loan tied to a Treasury Bill with a 2.0% margin would have 2% added to the bill's interest rate. Thus, a Treasury Bill at 7% with a 2% margin would yield a 9% interest rate for the buyer.


  • Annual cap - Some loans have rates that change once a year. An annual cap specifies by how much the interest rate may adjust, either up or down. No matter what the index does, the annual rate cannoth adjust by more than the amount of this cap.


  • Lifetime cap - The maximum or minimum interest rate over the life of the loan. As with annual caps, these rates may not be exceeded, no matter what the value of the index to which the loan is tied should do.


  • These are the most commonly used terms for adjustable rate loans. The terms can vary widely from lender to lender; there are loans that adjust as soon as one year after being issued and others that will not adjust for a decade. These mortgages come in all shapes and sizes so as to accommodate the widest variety of customer. If you are considering taking out an adjustable rate loan, make sure you shop around in order to find the terms that best suit you.
    Charles Essmeier

    About the Author/Author Bio

    (c)Copyright 2006 by Retro Marketing. Charles Essmeier is the owner of Retro Marketing, a firm devoted to informational Websites, including HomeEquityHelp.net, a site about home equity loans, mortgages and refinancing.

    Article Source: http://www.articlesphere.com/Article/Adjustable-Rate-Mortgages-Terminology-Can-Be-Confusing/66318

    Article Submitted: 2007-01-10 | This Article has been viewed 705 times.

    Rate Article

    Related Videos

    Learn about Mortgage Rates and Points
    How to Lock Your Mortgage Rate Before Lender Hikes It
    Home Loan Mortgage Choices for your Next Home
    Bad Credit Mortgages
    Mortgage Rate Outlook
     

    More "Mortgages Refinance" Related Articles

     
     

    Listed below are more articles related to the above article from the "Mortgages Refinance" article category.

    People interested in the above article "Adjustable Rate Mortgages Terminology Can Be Confusing" are also interested in the related articles listed below:

     
    You decide it's time to go shopping for a home mortgage. The instant this decision is made, a feeling of dread washes over you. The same old questions thump inside your brain. How do I compare home loan interest rates? How will I know a fair rate when I see one? The where, what, how and why of home financing will have you so mind boggled you will soon be tearing your hair out in despair.
    With the commercial real estate market about to go into a crisis that may actually even be worse than the one experienced by the housing sector, it is easy to figure out the reasons why the bank regulators have urged the lenders to enhance their efforts in finding ways to approve a commercial mortgage modification for their property owners on the brink of foreclosure. The Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and other financial regulators are worried that the stability of the financial institutions could easily crumble with the onset of the upcoming wave of defaults by commercial property borrowers.
    Financial analysts have been predicting that the commercial property sector will also undergo a crisis that might even be worse than the collapse experienced in the residential housing market. The increasing number of vacancies in commercial properties and the unchecked increase in the unemployment rate are harbingers of potential serious problems in this particular market.
    There are a lot of options available in the mortgage banking industry for those with poor credit. However, this is not an easy undertaking. A mortgage is a long term commitment, usually for thirty years, so you definitely want to find a loan that will be manageable over the long haul. You will need to do some research and weigh your options.
    Are you ready to buy a Canadian home? You're going to need a Canada mortgage. Have you checked the going rates? Don't know yet how to get the best rate? Your credit rating needs to be extra good to get the best rate. For more tips on getting a low mortgage, read this article.
    Though there are programs in place that the federal government is supporting to hopefully keep more families in their homes, there have been some serious pitfalls in the actual workings of these programs to the dismay of many struggling home owners.
    There are a few things you need to provide to the bank when you qualify for Los Angeles bank foreclosures. These things include proof of employment, a down payment, and your credit scores. The bank will look at each of these things differently when they make a decision on whether or not they should give you a loan.
     
    Article Directory Home All Categories Finance Mortgages Refinance
     

    Can't find what you're looking for? Try Google Search!
     
    Copyright © 2005 - by Larry Lim, Singapore - Article Search Engine Directory at ArticleSphere.com™
    All Rights Reserved Worldwide. All Trademarks and Servicemarks are the property of the respective owners.

    Afrikaans Albanian Arabic Belarusian Bulgarian Catalan Chinese (Simplified) Chinese (Traditional) Croatian Czech Danish German English Estonian Filipino Finnish French Galician Greek Hebrew Hindi Hungarian Icelandic Indonesian Irish Italiano Japanese Korean Latvian Lithuanian Macedonian Malay Maltese Dutch Norwegian Persian Polish Portuguese Romanian Russian Serbian Slovak Slovenian Spanish Swahili Swedish Thai Turkish Ukrainian Vietnamese Welsh Yiddish