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Facts - Books - News    U.S. Facts Of Law:

Adjustable Rate Mortgage - ARM

An adjustable rate mortgage, or ARM, is a form of real estate loan whose interest rate and payment vary as the interest rate market changes.  An adjustable rate mortgage is also known as a variable rate mortgage.

ARM's have the advantage of offering a lower initial interest rate than a traditional fixed rate mortgage because the rate is based on the lower short term interest rate market.  When interest rates are falling or remain flat, the ARM is an advantageous type of mortgage.  Under these circumstances the interest rate and, thus, payments will remain low or even decline.

The ARM, or adjustable rate mortgage, is at a disadvantage when interest rates are rising.  Rising interest rates can quickly increase the rate charged on an ARM with a resulting increase in the monthly payment.  If the ARM includes a prepayment penalty, the borrower is faced with additional costs to move to a fixed rate mortgage and lock the interest rate.

Because of the initial low rate of adjustable rate mortgages, they have been sold to home buyers who may not have been able to afford the payments of a traditional mortgage.  These are the very people who cannot make their mortgage payments if interest rates even rise moderately.  Once interest rates start to climb, the rate on new fixed rate mortgages climb also making the switch from the ARM to a fixed rate mortgage out of reach for many ARM borrowers.

This situation occurred at the beginning of the new millennium.  Housing prices were climbing out of the reach of many buyers.  Interest rates were low and real estate and mortgage professionals started offering adjustable rate mortgages to these buyers on the premise that the an ARM had a slightly lower interest rate than a fixed rate loan and, therefore, had a payment the buyer could afford.  The thinking by these professionals was that if the interest rate increased on the ARM, the buyer could just refinance to a fixed rate loan or sell the home at what should be an appreciated value.

Unfortunately, what really happened should have been expected by these professionals and the banks and institutions that underwrote the mortgages.  Interest rates started to increase causing ARM payments to increase for many home owners.  As the real estate market softened, as it normally would due to rising interest rates, home owners with adjustable rate mortgages found themselves unable to secure fixed rate financing because of the increase in the interest rate and monthly payment for the loan.  So, they had no choice but to begin to dump their homes on the market.  This flood of inventory further depressed home prices.

As home prices continued lower, home owners with ARM's found they could not make their payments and could not sell their home for the amount remaining on their loan.  The result was a mass of home foreclosures.  Homes that have been foreclosed upon eventually are put on the market and this put even more pressure on the downward spiral of prices.

Interest rates continued to drift higher as the rest of the economy and commodity prices, including oil, increased fears of inflation.  The massive meltdown in real estate prices fed further by the foreclosure mechanism, pushed many home owners into just giving up on their home payments or filing for bankruptcy.  The net result has been a large group of people who have lost their American Dream and a large number of financial institutions who are now writing off hundreds of billions of dollars in mortgage losses with many of them going bankrupt themselves.


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Mortgage Rates Trend Higher For Friday Mortgage rates trend higher for Friday Several closely watched mortgage rates advanced today. If you39re in the market for a mortgage, see what that means for you. US Mortgage Rates Hold Steady in Mid March After Last Week39s DropWorld Property Journal Mortgage Rates Hold Steady After Last Week39s DropThe FINANCIAL Mortgage Rates Hold Steady After Last Week39s Drop GlobeNewswireGlobeNewswire press release The Spokesman Review all 8 news articles raquo

The Fed Just Raised Interest Rateshere Are 4 Steps You Can Take To Protect Yo...
CNBC The Fed just raised interest rateshere are 4 steps you can take to protect your money CNBC If you have an adjustable rate mortgage, now is the time to try and switch over to a fixed rate one, so you aren39t as susceptible to further increases. quotIf you have an adjustable rate mortgage, you could be in for a doozy of a payment increase at the How Federal Reserve rate hike will affect mortgages, auto loans, credit cardsUSA TODAY What the Federal Reserve rate hike means for US householdsReuters What a Federal Reserve rate hike means for youWINA AM 1070 Chicago Tribune all 1,844 news articles raquo

What The Fedaposs Interest Rate Hike Means For Mortgage Rates What the Fed39s interest rate hike means for mortgage rates The Federal Reserve lifted the federal funds rate on Wednesday by a quarter percentage point to a range of 1.5 percent to 1.75 percent. Two more rate hikes are expected this year. Three are expected in 2019, rather than two as initially projected. If

Are You Considering An Adjustable Rate Mortgage Here Are The Pros And Cons CNBC
CNBC Are you considering an adjustable rate mortgage Here are the pros and cons CNBC With interest rates on home loans climbing, homebuyers or homeowners looking to refinance might be tempted by the lower initial cost of an adjustable rate mortgage. Yet before you sign on the dotted line for a so called ARM, it39s important to Mortgage rates move lower for Fixed mortgage rates keep rising with no end in sightWashington Post Mortgage rates hit a more than 4 year high as investors brace for a more hawkish FedMarketWatch HousingWire Mortgageorb Marketwired press release all 100 news articles raquo

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Facts of Law explaining the adjustable rate mortgage

Facts of Law - Adjustable Rate Mortgage