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Intermediate
Adjustable Rate Mortgages :-
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Intermediate Adjustable Rate
Mortgages offer all the features
of a fixed-rate loan combined
with extraordinary initial value.
With an Intermediate ARM, you
may start with an initial fixed
rate for one, three, five or
seven years. After the specified
period, the rate may change
annually. Interest rate caps
determine the maximum allowable
increase or decrease when the
rate changes, and a lifetime
cap determines the maximum allowable
increase over the life of the
loan.
For example, one of the most
popular adjustable rate mortgages
is a 5-year ARM. The interest
rate and payments on this loan
do not change for the first
five years, but can change thereafter.
The advantages of an adjustable
rate mortgage include affordable
payments and financing, a lower
introductory interest rate and
more financial freedom at the
beginning of your home ownership.
An ARM can be the ideal loan
for many homebuyers. You should
consider an ARM if you may live
in your home for five years
or less, if your income is likely
to increase or if you would
simply like to maximize your
buying power and prefer to save
extra cash during the first
few years of your mortgage.
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List
your current financial priorities
(i.e. cash flow, rapid repayment
of the home loan)? |
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For
example, if cash flow is a top
priority, an adjustable with
varied payment options may be
your best bet. Some adjustable
products agree borrowers to
choose from 3-4 payment options
each month (i.e. interest only,
allowing for negative amortization,
30 year fixed rate fully amortized
or 15 year fixed rate fully
amortized). This allows a borrower
to prefer a different payment
option every month based upon
his or her monthly cash flow. |
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For
others, the purpose may be rapid
repayment in which case a 15
year home loan may be considered
or possibly an adjustable rate
with a lower rate of interest
supplemented by extra principal
payments to retire the mortgage
debt early. With an adjustable
vs. a fixed rate, your principal
reduction payments will manage
to pay you a progressively lower
required monthly home loan payment
as the mortgage is recast and
interest is calculated and your
payment is based on the existing
home loan balance vs. the original
balance. With a fixed rate home
loan your required payment will
remain constant over the life
of the home loan, regardless
of any principal reduction payments
you may make. |
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List
whether you anticipate any major
changes to your financial situation
in the next few years.
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For
example, do you anticipate receiving
funds (stock options, inheritance,
sale of an asset) in the next
few months or years that would
sanction you to pay down your
home loan balance? If so you
may choose a home loan with
an interest rate that is guaranteed
for a shorter term (i.e. an
ARM with a rate fixed for 1-5
existence) reflecting the time
frame from which you expect
to receive the funds. After
this time you could refinance,
using these funds to pay down
the balance on your existing
home loan or if you currently
had an adjustable that is scheduled
to recast, you may just pay
the balance down and enjoy a
lower monthly payment without
refinancing. |
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Check
recent credit history: |
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If
you have outstanding credit, you may
have question about home loan products
that are discounted for individuals
with high credit ratings. In addition
to credit, some lenders will also
offer further discounts to borrowers
who have high equity in their property,
usually considered to be 30-35%+.
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For
those having credit blemishes, it
is best to discuss your history openly
and honestly with your home loan consultant
and to analysis your current credit
report together. The market for less
than perfect credit applicants (referred
to as sub prime) has grown considerably
over the last few years offering competitive
interest rates and a greater variety
of product options. For those planning
to improve their credit ratings, it
is greatest to take shorter term financing
of 2 to 3 years, after which one can
refinance into "A paper"
(the best) financing. |
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