Mortgage Financing and Adjustable Rate Mortgages

The main attraction of adjustable rate mortgagewhether to make a mortgage based on the ratio of
financing is that it is cheaper than fixed rate financingcurrent income to monthly payment.
for the same size mortgage. This mean lower monthlyThe main drawback - The trade-off for low initial rates
payments and larger loan amounts for borrowers.is the risk of rates going higher in the future-much
Adjustable rate mortgages (ARMs) have been ahigher. Many borrowers who run into this problem have
popular form of mortgage financing in recent years.to refinance, as Frank Nothaft, Freddie Mac's chief
These mortgages start out at low rates for a seteconomist points out. "But the wide proliferation of
period; then adjust along with the index to which theyadjustable-rate mortgages originated in the past few
are tied. As interest rates go up, so do the monthlyyears that are nearing their first interest-rate
payments.adjustment provides borrowers an incentive to
The index to which the interest rate is tied varies fromrefinance into a lower-cost ARM or fixed-rate
lender to lender. The most common indexes are themortgage."
rates on one, three, or five-year Treasury securities.Right for you? - Adjustable rate mortgage financing
Another favorite is the average cost of funds tomake sense for borrowers who cannot qualify for a
savings and loan associations. To the index rate, thefixed rate mortgage large enough for the house they
lender adds a few percentage points called thewant to purchase, or for those whose income is likely
"margin."to rise enough to cover higher payments in the future.
The main attraction - The main attraction of adjustableIt would not be a good move for those who might
rate mortgage financing is that it is initially cheaper thanmove in the next few years.
fixed rate financing for the same size mortgage. NotLearn more about your mortgage financing options by
only does this mean lower monthly payments to startvisiting Bad Credit Second Mortgage Now. The site
with, it means borrowers can qualify for larger loanalso offers free mortgage quotes at today's most
amounts. That's because lenders sometimes decidecompetitive rates.