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Adjustable Rate Mortgage: A Consolidation Option By Andrew McAllister An adjustable rate (ARM for short) is a type of refinancing loan. With an ARM, the interest rate and subsequent payments will be changing over time depending on several variables. Generally, the ARM rate will increase significantly, though there is a cap or maximum limit on just how much it can increase.
Though an adjustable rate can be a good option for those with lower credit ratings, they're not without problems and you should find out everything you can before making a final decision as to whether an adjustable rate is right for you.
The interest rate on an adjustable rate refinance loan is variable. ARMs are linked to one of several economic indices, including the Prime Index. As the specific index increases or decreases, your interest rate will fluctuate. The rates vary because the cost to the lender varies, and the lender in turn passes the additional costs on to you, the borrower.
In the event of a dramatic change in the index, there is a clause in the ARM commitment which protects the borrower. This clause places a cap on the amount the interest rate can increase over a certain period of time. This limitation placed on the interest rate, once that cap is reached, will prevent further increases for the remainder of that time period. This is one of the benefits of the adjustable rate mortgage-refinancing loan.
When used as part of a hybrid mortgage, an adjustable rate is even more appealing. A hybrid can begin at either a fixed or adjustable rate and remain that way for two years at which time the rate can become variable (or vice versa). A fixed rate is preferable at the onset of the loan in order to take full advantage of introductory rates that will generally be lower than the adjustable rate would start at.
The credit score of a potential buyer is one of the major factors in the lender's decision on interest rates offered on an adjustable
rate refinance. The amount of equity in your home can be your saving grace if you have a low credit score - the more equity you have, the lower the interest rates will be that are available.
Potential homebuyers with bad credit will often be directed toward an ARM. Though it is possible to buy a home with a poor credit score, the interest rates are going to be much higher than the average loans available to consumers. There may be a significant difference in the rates offered.
One additional consideration, bad credit may disqualify you for a hybrid loan, which means that interest rates may not be fixed at during the loan duration due to the increased risk on the part of the lender (mortgage company). Those who are desperately seeking a mortgage-refinancing loan may have gotten off to a rocky start financially; an adjustable rate is worth looking into.
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Proposed RESPA Reform
Mortgage brokers may have some intrusive rules from HUD to deal with.
When I read the news on HUD?s proposed reform of the Real Estate Settlement and Procedures Act (RESPA) I was skeptical. Cathy from Sequim challenged me to read the 96-page federal register document so we could all figure out what?s going on. I am here to tell you that there is one very good change coming out of this proposal. In fact, it?s so good that I am borderline hopeful that this change might do what legislation is suppose to do and what HUD forgot to do when they signed the original version of RESPA in 1974. But first, the changes that will have many, but not all mortgage brokers screaming bloody murder:
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Neocon-omics
How much can the Fed and the U.S. government do in the face of declining housing prices?
That?s been my worry since I saw the housing bubble peak in 2005. Historically, declines in housing prices take 3-4 years to bottom, which means we still should be at least half a year away. But after that, the economy doesn?t rebound instantly. It yo-yos for a bit - essentially running horizontal.
Fannie Mae and Freddie Mac have entered into cooperation agreements with New York?s attorney general to only purchase loans that meet a new home valuation protection code, the state announced. The code is effected on Jan. 1, 2009. Under the new code, mortgage brokers and loan originators are prohibited from choosing or communicating with appraisers.
]]>
Choosing Second-best
How to leverage your second choice into seller concessions and a better deal.
So, rather than competing for the best house and paying top dollar, you can use it as leverage to get a lower price and seller concessions on a home that could be even more ideal for you ? after you do a little work.
]]>
Price Depression
A forecast for more housing price depression.
My theory is that housing prices will continue to wilt as long as large levels of foreclosures and new home inventories run high. These are not traditional homeowners, and are motivated to slash prices, thus continuing to depress prices.
You should try to get pre-approved by a lender prior to shopping for a home. A pre-approval is a strong marketing tool when making an offer that may contain many a number of seller concessions. Telling a seller that you are already approved for a loan makes the acceptance of a low offer or one where he may be paying the closing costs much more palatable.
US News and World Report implies (hopes?) we may be nearing a bottom in housing prices but with a mountain of resets coming in the next few months, it?s difficult to see how a bottom can be seen or even predicted.
]]>
Strike One
A look at role of mortgage insurance in FHA loans.
Regarding the second point: By not raising the loan limits they fail in one of the 11 ways they can help. I believe they will fail in almost all, but let us have hope. To be specific as to why I support this: FHA is not a government gimme. It is a government guarantee the mortgage will be paid or the lender compensated for losses. The program pays positive cash flow to the government in that there is a type of mortgage insurance fee charged the borrower. It is reasonable and more than pays for the reimbursements made to the lenders that suffer a default.
]]>
Who's To Blame
Mortgage brokers share the blame with the rest of the industry in the current real estate mess.
Who is not to blame for the mortgage mess? Take one step back. As lenders, money was flowing from the spigot like there was no tomorrow. As mortgage brokers, there was money to be made by cranking the faucet, and it was a foot race to see who could get to the sink first. As agents, we sang the ?Houses are expensive, but money is cheap? refrain until we were blue in the face. And, as for the consumer, it really doesn?t matter in the final analysis whether they were motivated by necessity, opportunity or unadulterated greed. We all helped make this bed in which we now must lie.
]]>
Trying To Move
Hard to move when you're house loses value.
I will continue to work from Los Angeles while we work on selling our house, which unfortunately is bad timing as housing prices have taken a bit of a dive around here. Once we have things settled over here, we?ll pack our things and move up to Seattle.
What else can you say to such a ridiculous report, such obvious sensationalism? The sad thing is, many people will read this wild hyperbole and imagine that the TV station?s salacious report has a ?point? to it.
]]>
Home Buyers Returning This Fall
This blogger says lower mortgage rates will drive buyers to the residential real estate market soon.
Ten days ago after the Fed calmed the markets' credit panic with a 1/2 point cut in the Discount rate, I postulated that home buyers will come back this fall when the Fed finally drops the Fed Funds rate, and mortgage rates drop. It's now almost certain to happen. Here are the parameters in play now:
]]>
Lead Scrub Rates
A look at the cost of a lead for a mortgage broker.
Joel has a good interview with Dave Wengel of TargusInfo around Mortgage lead scrub rates. Specifically that lendingtree and lowermybills have a 15% scrub rate whereas the free ipod guys (lure people in with promise of a free ipod but they and their friends have to signup for credit cards, netflix and talk to mortgage brokers to get it) have around a 50-60% scrub rate.
Having been an FHA lender I can attest it is a pain at times. FHA requires annual financial audits of the mortgage brokers financial condition and more. We always have survived the several day pain, and the expenses tied to it, but only FHA drags brokers through this. The actual banks that sponsor the mortgage broker go through even more red tape and grief. Loan officers have to know more rules. FHA doesn?t rely on the easy automated underwriting or the quick answer from a subprime lender. FHA restricts how the borrowers pay for certain expenses and how much the lender can charge.
Proposed RESPA Reform
Mortgage brokers may have some intrusive rules from HUD to deal with.
When I read the news on HUD?s proposed reform of the Real Estate Settlement and Procedures Act (RESPA) I was skeptical. Cathy from Sequim challenged me to read the 96-page federal register document so we could all figure out what?s going on. I am here to tell you that there is one very good change coming out of this proposal. In fact, it?s so good that I am borderline hopeful that this change might do what legislation is suppose to do and what HUD forgot to do when they signed the original version of RESPA in 1974. But first, the changes that will have many, but not all mortgage brokers screaming bloody murder:
]]>
Neocon-omics
How much can the Fed and the U.S. government do in the face of declining housing prices?
That?s been my worry since I saw the housing bubble peak in 2005. Historically, declines in housing prices take 3-4 years to bottom, which means we still should be at least half a year away. But after that, the economy doesn?t rebound instantly. It yo-yos for a bit - essentially running horizontal.
Fannie Mae and Freddie Mac have entered into cooperation agreements with New York?s attorney general to only purchase loans that meet a new home valuation protection code, the state announced. The code is effected on Jan. 1, 2009. Under the new code, mortgage brokers and loan originators are prohibited from choosing or communicating with appraisers.
]]>
Choosing Second-best
How to leverage your second choice into seller concessions and a better deal.
So, rather than competing for the best house and paying top dollar, you can use it as leverage to get a lower price and seller concessions on a home that could be even more ideal for you ? after you do a little work.
]]>
Price Depression
A forecast for more housing price depression.
My theory is that housing prices will continue to wilt as long as large levels of foreclosures and new home inventories run high. These are not traditional homeowners, and are motivated to slash prices, thus continuing to depress prices.
You should try to get pre-approved by a lender prior to shopping for a home. A pre-approval is a strong marketing tool when making an offer that may contain many a number of seller concessions. Telling a seller that you are already approved for a loan makes the acceptance of a low offer or one where he may be paying the closing costs much more palatable.
US News and World Report implies (hopes?) we may be nearing a bottom in housing prices but with a mountain of resets coming in the next few months, it?s difficult to see how a bottom can be seen or even predicted.
]]>
Strike One
A look at role of mortgage insurance in FHA loans.
Regarding the second point: By not raising the loan limits they fail in one of the 11 ways they can help. I believe they will fail in almost all, but let us have hope. To be specific as to why I support this: FHA is not a government gimme. It is a government guarantee the mortgage will be paid or the lender compensated for losses. The program pays positive cash flow to the government in that there is a type of mortgage insurance fee charged the borrower. It is reasonable and more than pays for the reimbursements made to the lenders that suffer a default.
]]>
Who's To Blame
Mortgage brokers share the blame with the rest of the industry in the current real estate mess.
Who is not to blame for the mortgage mess? Take one step back. As lenders, money was flowing from the spigot like there was no tomorrow. As mortgage brokers, there was money to be made by cranking the faucet, and it was a foot race to see who could get to the sink first. As agents, we sang the ?Houses are expensive, but money is cheap? refrain until we were blue in the face. And, as for the consumer, it really doesn?t matter in the final analysis whether they were motivated by necessity, opportunity or unadulterated greed. We all helped make this bed in which we now must lie.
]]>
Trying To Move
Hard to move when you're house loses value.
I will continue to work from Los Angeles while we work on selling our house, which unfortunately is bad timing as housing prices have taken a bit of a dive around here. Once we have things settled over here, we?ll pack our things and move up to Seattle.
What else can you say to such a ridiculous report, such obvious sensationalism? The sad thing is, many people will read this wild hyperbole and imagine that the TV station?s salacious report has a ?point? to it.
]]>
Home Buyers Returning This Fall
This blogger says lower mortgage rates will drive buyers to the residential real estate market soon.
Ten days ago after the Fed calmed the markets' credit panic with a 1/2 point cut in the Discount rate, I postulated that home buyers will come back this fall when the Fed finally drops the Fed Funds rate, and mortgage rates drop. It's now almost certain to happen. Here are the parameters in play now:
]]>
Lead Scrub Rates
A look at the cost of a lead for a mortgage broker.
Joel has a good interview with Dave Wengel of TargusInfo around Mortgage lead scrub rates. Specifically that lendingtree and lowermybills have a 15% scrub rate whereas the free ipod guys (lure people in with promise of a free ipod but they and their friends have to signup for credit cards, netflix and talk to mortgage brokers to get it) have around a 50-60% scrub rate.
Having been an FHA lender I can attest it is a pain at times. FHA requires annual financial audits of the mortgage brokers financial condition and more. We always have survived the several day pain, and the expenses tied to it, but only FHA drags brokers through this. The actual banks that sponsor the mortgage broker go through even more red tape and grief. Loan officers have to know more rules. FHA doesn?t rely on the easy automated underwriting or the quick answer from a subprime lender. FHA restricts how the borrowers pay for certain expenses and how much the lender can charge.
