Adjustable Rate Mortgages
Should you consider an adjustable rate mortgage (ARM)? The
interest rate of an ARM is tied to an index rate. Periodically
the monthly payment on an adjustable rate mortgage may go up or
down depending upon whether the index rate it is tied to has
gone up or down.
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When applying for a bad credit mortgage loan, make sure you are current on your existing credit lines. You will want your current credit to be as good as possible.
Also, make sure to include all the income you have. If you have any equity in any stocks or other financial accounts, make sure to mention that to the broker as well.
The more money you can put down on the loan, the more likely it is that you can get approved. FHA loans usually only require 3-5% down. They are also usually open to working with people with credit problems.
Obvious advantages - An adjustable rate mortgage has two
obvious advantages. One, at the beginning of the mortgage term
the monthly payment will be lower. Two, the payment to income
ratio will be lower therefore it may be possible to qualify for
a larger loan amount.
Know ARM definitions - There are three basic terms to
know when considering an adjustable rate mortgage. One, index
rate – the rate that the mortgage will be tied to, such as a
one, five or ten year treasury security. Two, margin – the
amount the interest rate on the mortgage will fluctuate. A
margin of two means the interest rate will be two points above
the index rate. Three, caps – ceilings on how much the interest
rate can go up each period. There also may be caps on the
interest rate over the life of the loan and caps on the actual
amount of the payment.
Be cautious - Depending on the situation an adjustable
rate mortgage can be a wise idea. However, an ARM can also lead
to an unanticipated large increase in a monthly mortgage
payment. Payments may go up $200 or more at one time. If
considering an ARM, discuss it in depth with your financial
institution. Don't be timid about getting a second opinion.
Here are our recommended mortgage lenders online:
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The average rate of interest on mortgage loans continues to fall and has been under 5 percent for almost all of this past year, with this recent round of rate cuts seen as the lowest for borrowers in years. The reason, many borrowers today have bad or at least less than perfect credit scores. Still a borrower with less then perfect credit an jump through a few hoops and get a fairly decen rate on a loan.
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