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Information.
HOW CAN I REDUCE MY RISK? (continued)
Negative Amortization (continued)
To sum up, the payment cap limits increases in your monthly payment
by deferring some of the increase in interest. Eventually, you will have
to repay the higher remaining loan balance at the ARM rate then in
effect. When this happens, there may be a substantial increase in your
monthly payment.
Some mortgages contain a cap on negative amortization. The cap
typically limits the total amount you can owe to 125% of the original
loan amount. When that point is reached, monthly payments may be set to
fully repay the loan over the remaining term, and your payment cap may
not apply. You may limit negative amortization by voluntarily increasing
your monthly payment. Be sure to discuss negative amortization with
the lender to
understand how it will apply to your loan.
Prepayment and Conversion
If you get an ARM and your financial circumstances change, you may
decide that you don't want to risk any further changes in the interest
rate and payment amount. When you are considering an ARM, ask for
information about prepayment and conversion.
Prepayment---Some agreements may require you to pay special
fees
or
penalties if you pay off the ARM early. Many ARMs allow you to pay the
loan in full or in part without penalty whenever the rate is adjusted.
Prepayment details are sometimes negotiable. If so, you may want to
negotiate for no penalty, or for as low a penalty as possible.
Conversion---Your agreement with the lender can have a clause
that
lets you convert the ARM to a fixed-rate mortgage at designated times.
When you convert, the new rate is generally set at the current market
rate for fixed-rate mortgages. The interest rate or up-front fees may
be somewhat higher for a convertible ARM. Also, a convertible ARM may
require a special fee at the time of conversion.
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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