Is an Adjustable Rate Mortgage Right For You?

Many Americans, singles and couples, believe it is next to impossible to own a home due to bad credit because of poor financial decisions in their past. There are a myriad of options available to borrowers of all types; prospective home buyers should not count themselves out before carefully considering their options to see if one might be their ticket to home ownership. An excellent avenue for many would be buyers, an Adjustable Rate Mortgage, or ARM, possesses many advantages that make it an attractive option.

Adjustable rate mortgages are home mortgages with variable interest rates that are most often adjusted annually, often according to fluctuation of the nation and government’s economic patterns. Recently added limits on amount and number of interest raises per year and over the life of the loan make these loans a more viable option to more borrowers than ever before. Adjustable rate mortgages are most attractive to new home buyers and borrowers with less than favorable credit because their qualifying standards are less stringent than conventional fixed rate mortgages. Adjustable rate mortgages often possess lower interest rates than fixed rate loans initially, and most often for the first few years. So if an owner is not planning to be in a given house for more than five years, an adjustable rate mortgage often makes the most sense; if plans change, a refinance of the loan into a fixed mortgage is always an option that many borrowers may look to down the road.

There are, of course, many advantages for the lenders as they deal out adjustable rate mortgages. As earlier stated, lenders reserve the right to adjust the interest rate upwards as the state of the nation’s economy changes. This means that an ARM can often be higher than national interest rates. Lenders are also not required to lower their ARM interest rates if national rates see a decline. Also, because ARMs often are not required to follow governmental set guidelines such as those for FHA loans, many more applicants are accepted. Not all loan applicants are able to keep up with rising costs of monthly mortgage payments and some are forced into foreclosure because of financial oversight on their part. A foreclosed house becomes the property of the bank or other lender and will be sold to recoup costs in addition to the pre-foreclosure mortgage payment monies collected.

In summation, an adjustable rate mortgage has its advantages and disadvantages, as do all loans. If the positives outweigh the negatives in your specific financial situation, it is the type of loan you should choose. It is always best to take your time and weigh all options and remember, should better rates become available, a mortgage refinance with a reputable company such as FreeHomeRefi.com can help you switch to a conventional loan or other viable options when needs change.

About the Author: Jeremi McMaster is Chief Executive Officer of FreeHomeRefi.com, leading provider of home refinance solutions. For information on mortgage refi, go to
www.FreeHomeRefi.com.

Negative Amortization Explained

When considering financing for the purchase of a new home or business, it is easy to get bogged down in all the details and options available. It is necessary, however, to consider all available avenues and lenders in order to assure an optimum package of financing is attained that will fit the particular need and budget. An available option that many first time homebuyers consider is a fixed loan with a clause providing for negative amortization for the early years of the loan. Loans that include this option are often referred to as graduate payment mortgages, or GPMs, and can be very useful to singles or couples just starting out that want to take advantage of investing in personal property in the present in order to build for their future, though their incomes might not be conducive for a large mortgage payment currently.

In a conventional loan, the payment a borrower makes is made up of two parts: the amount paid upon the interest of the loan and the amount that is applied to the principal. This amount toward the principal is referred to as amortization of the principal, and reduces the overall amount a borrower owes the lender. An example of amortization in action: A certain borrower’s loan from a lender is $200,000 at 5% interest. His or her mortgage payment each month of $1000 might apply $800 to the interest accrued, while $200 go towards the loan amount. This application or amortization to the principal brings the loan amount down to $198,800 after the first month. A negative amortization clause would allow the borrower to pay a much smaller payment; an amount less than the interest accrued. This can help allow buyers with smaller incomes qualify for a larger loan because they are agreeing to an option that could result in a longer and costlier payoff in the long run. Most negative amortization mortgages offer borrowers up to four payment options each month, ranging from a 30 year fixed payment, an interest only payment, to a less than the interest accrued payment. These flexible payment options are also attractive to buyers who need to have cash flow available for businesses or other sorts of investment ventures.

Borrowers should feel empowered to shop around and find the exact package that fits their needs perfectly. Lenders such as HomeRefi.com are willing to work with prospective buyers, providing them with all the information necessary to make an informed decision, making home ownership a reality.

About the Author: Jeremi McMaster is Chief Executive Officer of FreeHomeRefi.com, leading provider of home refinance solutions. For information on refinancing online, go to
www.FreeHomeRefi.com.