Adjustable rate mortgages vs fixed rate - How are adjustable rate mortgages calculated ?

The wider options available in the market for choosing the best mortgage under fixed rate mortgage and adjustable rate mortgage (ARMs) usually makes people confused. The main thing that matters is to understand the type of loan that best complements your needs and requirements. More.

For choosing the best mortgage, one needs to understand the calculation process of an adjustable rate mortgage (ARM) done by the lender. Basically, it involves the use of an index and a margin to calculate what will be the interest that will have to be paid by the person who takes the mortgage. The index, which is used by the lenders to estimate the rate of interest that has to be paid monthly on the mortgage, are of different types such as London Interbank Offered Rate (LIBOR), Constant Maturity Treasury Securities (CMT), Cost of Funds Index (COFI) and others. More.

Though the rate of interest in the initial period, the periodical interest rate and the initial rate of interest in an adjustable rate mortgage look very simple and attractive, this type of mortgage has its own advantages and disadvantages. When we compare fixed rate mortgage and adjustable rate mortgage, we will find that the interest rate of ARM is very low, which simply means that the payment will also be low. In other words,

a person who is also a borrower would be eligible for higher amount of loan. More.

A mortgage is nothing but a piece of paper taken as a guarantee that ensures that borrower will pay off lender over an allotted period of time. In case the borrower fails to pay instalments on time, the lender has the right to recover the dues by many means such as by seizing home before waiting for the debtor approval. Jumbo mortgage: As the name suggests, this mortgage is about a higher amount in the loan when required. It opens a prospect to buy classy and luxurious assets. But, always remember, higher the mortgage, higher will be interest ra More.

Some decades ago, 30 year fixed rate mortgage was thought as the only option for getting into a mortgage, and adjustable rate mortgage was not considered beneficial for the borrower. As a matter of fact, adjustable rate mortgage has certain advantages over fixed rate mortgages, especially when taken for a short duration of time. Adjustable rate mortgage is usually opted for short term needs, and it has a lower interest rate when compared to fixed rate mortgage. It also provides some financial relaxation with the availability of interest only payments, which basically means interest plus loan or interest alone. More.

Source: www.rocketswag.com

Category: Credit

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