Adjustable rate mortgage (ARM) loans have received overall negative attention, but in reality, it was unwarranted. Lenders misused these loans, and many unqualified borrowers became trapped in an ARM loan when the bubble burst. Those making lending rules grouped ARM loans in with other financial instruments not suited for the residential mortgage marketplace. Many new disclosures were instituted to scare borrowers and dissuade lenders from recommending ARM loans.
However, ARM loans play an important role in the market, and by following shorter-term interest rate indexes and offering discounted initial interest rates locked for 3, 5, 7 and 10 years, ARM loans allow some of my clients an opportunity to save money. I recommend an ARM when a client can foresee only needing the mortgage for a shorter term. Also, I ensure that they can afford the higher payment should the interest rate adjust higher after the fixed term ends. One note to consider is that many ARM loans have adjusted lower over the past 10 years, contrary to what we expect.
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Tags: adjustable loan, Adjustable rate mortgage, mortgage loans