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Information Services, Inc. (opens in new window)
One of the Nation's Leading Publishers of Home Finance
Information.
CONSUMER CAUTIONS
Payment shock
Payment shock may occur if your mortgage payment rises very sharply
at the first adjustment. Let's see what happens in the second year with
your discounted 8% ARM.
ARM Interest Rate Monthly Payment
------------------ ---------------
First year (w/discount) 8% $476.95
2nd year 10% $568.82
As the example shows, even if the index rate stays the same, your
monthly payment would go up from $476.95 to $568.82 in the second year.
Suppose that the index rate increases 2% in one year and the ARM
rate rises to a level of 12%.
ARM Interest Rate Monthly Payment
------------------ ---------------
First year (w/discount) 8% $476.95
2nd year 12% $665.43
That's an increase of almost $200 in your monthly payment. You can
see what might happen if you choose an ARM impulsively because of a low
initial rate. You can protect yourself from increases this big by
looking for a mortgage with features, described next, which may reduce
this risk.
The above text was extractly directly from the Consumer
Handbook On Adjustable Rate Mortgages, as published by the
Federal Reserve Board and Office of Thrift Supervision. Although the above
text is public domain, this electronic booklet is copyrighted © 1996
by Mortgage Market Information Services, Inc. Readers of this electronic
booklet are allowed to print the booklet for non-profit distribution
Pg 1 -- Introduction and credits
Pg 2 -- PEOPLE ARE ASKING
Pg 3 -- PEOPLE ARE ASKING (continued)
Pg 4 -- WHAT IS AN ARM?
Pg 5 -- HOW ARMS WORK:THE BASIC FEATURES
Pg 6 -- FEATURES (continued)
Pg 7 -- CONSUMER CAUTIONS (Discounts)
Pg 8 -- CONSUMER CAUTIONS (Payment shock)
Pg 9 -- HOW CAN I REDUCE MY RISK?
Pg 10 -- REDUCE MY RISK (continued)
Pg 11 -- REDUCE MY RISK (continued)
Pg 12 -- REDUCE MY RISK (continued)
Pg 13 -- REDUCE MY RISK (continued)
Pg 14 -- WHERE TO GET INFORMATION
Pg 15 -- INFORMATION (continued)
Pg 16 -- GLOSSARY
Pg 17 -- GLOSSARY (continued)
Pg 18 -- MORTGAGE CHECKLIST
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