| The main attraction of adjustable rate
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| | decide whether to make a mortgage based
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| mortgage financing is that it is cheaper
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| | on the ratio of current income to monthly
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| than fixed rate financing for the same
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| | payment.
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| size mortgage. This mean lower monthly
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| | The main drawback - The trade-off for low
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| payments and larger loan amounts for
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| | initial rates is the risk of rates going
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| borrowers.
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| | higher in the future-much higher. Many
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| Adjustable rate mortgages (ARMs) have
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| | borrowers who run into this problem have
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| been a popular form of mortgage financing
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| | to refinance, as Frank Nothaft, Freddie
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| in recent years. These mortgages start
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| | Mac's chief economist points out. "But
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| out at low rates for a set period; then
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| | the wide proliferation of adjustable-rate
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| adjust along with the index to which they
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| | mortgages originated in the past few
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| are tied. As interest rates go up, so do
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| | years that are nearing their first
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| the monthly payments.
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| | interest-rate adjustment provides
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| The index to which the interest rate is
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| | borrowers an incentive to refinance into
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| tied varies from lender to lender. The
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| | a lower-cost ARM or fixed-rate mortgage."
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| most common indexes are the rates on one,
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| | Right for you? - Adjustable rate mortgage
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| three, or five-year Treasury securities.
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| | financing make sense for borrowers who
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| Another favorite is the average cost of
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| | cannot qualify for a fixed rate mortgage
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| funds to savings and loan associations.
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| | large enough for the house they want to
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| To the index rate, the lender adds a few
| |
| | purchase, or for those whose income is
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| percentage points called the "margin."
| |
| | likely to rise enough to cover higher
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| The main attraction - The main attraction
| |
| | payments in the future. It would not be a
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| of adjustable rate mortgage financing is
| |
| | good move for those who might move in the
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| that it is initially cheaper than fixed
| |
| | next few years.
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| rate financing for the same size
| |
| | Learn more about your mortgage financing
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| mortgage. Not only does this mean lower
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| monthly payments to start with, it means
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