Adjustable Rate Mortgage.

Adjustable rate mortgage is becoming very attractive to a lot of prospective customers in the recent times. It is becoming one of the most favorite and one of the most efficient mortgages to help the prospective home-buyers.
Adjustable rate mortgage was developed at a time when the entire market was passing through a phase of high interest rates and many of the consumers were compelled to remain out of the housing-market scenario. The adjustable rate mortgage enabled these people to make their dreams real and to have a house of their own.

Very low starting rates are offered in this type of mortgage plans. The consumer starts paying a low interest rate and a low monthly installment and in the course of the loan term the interest rate and the monthly installments will grow gradually and reach to pre-decided limit.

Actually the lender and the borrower settles these issues among themselves before the loan is approved. This kind of mortgage is one of the two basic types of mortgages which are available in the market.
Adjustable rate mortgage and fixed rate mortgage are the two basic type of mortgage on which the entire mortgage market depends. There may be a huge number of mortgage plans in the market, but it is these two which are the base of all these innovations. Actually, these two types have been modified to several times to get several new mortgage types.

Variable rate mortgage and adjustable rate mortgage are the same and this is also known as ARM.Here the interest rate never remains steady and the periodical fluctuations are based on several predetermined indexes. The ARM can be also termed as a gamble because if the interest rate falls the mortgagor is going to be befitted, and when the rates are mounting, it is the hard time for the borrowers. Some of the adjustable rate mortgages offers the consumer the option to pay back the initial principal amount which which has been borrowed earlier and that also without any kind of penalty.

In the early days there were no protection available for the borrowers and the dishonest lenders managed several uneducated persons to become the borrowers of this type of loan and gradually these unfortunate people lost all their property because of the foreclosure proceedings. But this demerit has been rectified and today it is very much safe to apply for such a loan. There are several organizations like Consumer Federation of America, etc. which are fighting against these type of ill-practices of some particular lenders.

Some adjustable rate mortgages protects the borrower from such consequences. There are limits fixed for the interest rate increase in one year and also in the entire term of the loan. The borrowers are also offered with a fixed rate for the initial period and after that the interest rate starts fluctuating. These initial interest rates are so attractive that it attracts a huge number of borrower.

Some well known ARM indexes are:
Constant Maturity Treasury
Treasury Bill
12-Month Treasury Average
Certificate of Deposit Index
11th District Cost of Funds Index
Cost of Savings Index
London Inter Bank Offering Rates
Certificates of Deposit (CD) Indexes
Bank Prime Loan
Fannie Mae’s Required Net Yield
National Average Contract Mortgage Rate

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Last Updated on : 24th August 2013