Internet presentation by Mortgage Market
Information Services, Inc. (opens in new window)
One of the Nation's Leading Publishers of Home Finance
Information.
HOW CAN I REDUCE MY RISK?
Besides an overall rate ceiling, most ARMs also have "caps" that
protect borrowers from extreme increases in monthly payments. Others
allow borrowers to convert an ARM to a fixed-rate mortgage. While these
may offer real benefits, they may also cost more, or add special
features, such as negative amortization.
Interest-Rate Caps
An interest-rate cap places a limit on the amount your interest
rate can increase. Interest caps come in two versions:
- Periodic caps, which limit the interest rate increase from one
adjustment period to the next; and
- Overall caps, which limit the interest-rate increase over the life
of the loan.
By law, virtually all ARMs must have an overall cap. Many have a
periodic interest rate cap.
Let's suppose you have an ARM with a periodic interest rate cap of
2%. At the first adjustment, the index rate goes up 3%. The example
shows what happens.
ARM Interest Rate Monthly Payment
------------------ ---------------
First year @ 10% $570.42
2nd year @ 12% (without cap) $717.12
2nd year @ 12% (with cap) $667.30
Difference in 2nd year between payment
with cap and payment without = $49.82
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
Go to the Interest.com Bookshelf
|
