You will hear the following words in discussion with lenders on weapons.
Index
An index is what the lender used to measure changes in interest rates. Common indexes used by lenders include one, three and five-year government bonds, but there are many others. Each arm is coupled to a particular index.
Margin
Think of the edge of the lender markup. There is an interest rate that their business costs and the profit they make is on the loan. The margin rate to determine your overall interest rate recorded on the index. It's always the same during the term of the loan.
Adjustment period
The adjustment period is the period between rate adjustments.
You may see an ARM described figures such as 1-1, 3-1, and 5-1. The first number in each set refers to the original term of the loan in which your interest rate will be the same as it was on the day of closing. The second number is the adjustment period, showing how often adjustments can be made to the speed after the first period expired. The above examples are all weapons with annual adjustments.
If my payments can rise, why should I as an ARM?
The initial interest rate for an ARM is lower than a fixed rate (where the interest rate remains unchanged during the term of the loan). A lower rate means lower payments, help you could qualify for larger loans.
to consider other factors, an ARM:
The possibility of higher prices is not as much of a factor if you plan in the home for a relatively short time.
Do you expect that to increase your income? If so, the additional funds to cover the higher payments, which rises from.
Some weapons can be converted to a fixed-rate mortgage. However, the conversion costs can be high enough to take away all of the cost savings you saw with the first lower price.
Although you can not usually dictate which index a lender uses, you can apply to a lender on the basis of index of your loan. Ask how each index has performed in the past. Their goal is one that has remained relatively stable in difficult economic times to find.
When comparing lenders, consider both the index and the margin will be offered.
If the lender does not plan to sell a loan on the secondary market, you might be able, private mortgage insurance (PMI), which is normally required when a buyer makes less than 20% down payment to avoid.
I do not understand the text above More accurate text
An ARM is a mortgage with an interest rate that is linked to an economic index. The interest rate--and your payments--are periodically adjusted up or down as the index fluctuates.
You'll hear the following terminology when talking with lenders about ARMs.
Index
An index is what the lender uses to measure interest rate changes. Common indexes used by lenders include one, three, and five-year Treasury securities, but there are many others. Each ARM is linked to a specific index.
Margin
Think of the margin as the lender's markup. It is an interest rate that represents their cost of doing business plus the profit they will make on the loan. The margin is added to the index rate to determine your total interest rate. It usually stays the same during the life of the loan.
Adjustment period
The adjustment period is the period between rate adjustments.
You may see an ARM described with figures such as 1-1, 3-1, and 5-1. The first figure in each set refers to the initial period of the loan, during which your interest rate will be the same as it was on the day of closing. The second number is the adjustment period, showing how often adjustments can be made to the rate after the initial period has ended. The examples above are all ARMs with annual adjustments.
If my payments can go up, why should I consider an ARM?
The initial interest rate for an ARM is lower than that of a fixed rate mortgage (where the interest rate remains the same during the life of the loan). A lower rate means lower payments, which might help you qualify for a larger loan.
Other reasons to consider an ARM:
The possibility of higher rates isn't as much of a factor if you plan to be in the home for a relatively short time.
Do you expect your income to increase? If so, the extra funds may cover the higher payments that result from rate increases.
Some ARMs can be converted to a fixed-rate mortgage. However, conversion fees may be high enough to take away all of the savings you saw with the initial lower rate.
While you normally can't dictate which index a lender uses, you can choose a lender based on which index will apply to your loan. Ask how each index has performed in the past. Your goal is to find one that has remained fairly stable in economic downturns.
When comparing lenders, consider both the index and the margin rate being offered.
If the lender doesn't plan to sell your loan on the secondary market, you might be able to avoid the Private Mortgage Insurance (PMI) that's normally required when a buyer makes less than a 20% downpayment.
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