FHA Adjustable Rate Mortgage Loans are loans in which the interest rate will possibly change at some future date. The FHA Adjustable Rate (ARM) program has the standard 1 Year Arm and also the popular Hybrid Adjustable Rate Programs
The FHA Adjustable Rate Mortgage(ARM), 1 year ARM loan is one of the best adjustable rate mortgages currently available. It is available 1-4 unit homes, as well as condominiums, townhomes, and PUDs.
One benefit of the FHA Adjustable Rate 1 Year ARM is that it does not offer an initial low "teaser" rate like most other adjustable rate mortgages, therefore it will normally start at a slightly higher rate than most other adjustable loans. Thus you will most likely not have a large first adjustment.
The yearly interest can rise or decrease no more than 1% per year vs. 2% for a conventional loan.
The lifetime cap of the FHA adjustable rate mortgage is no more than 5% over the initial start rate vs. 6% for a conventional loan.
Therefore, a fha arm
can take 5 years before reaching its maximum rate vs. a conventional loan can cap in only 3 years.
FHA's adjustable rate mortgage is based on the economic indicator index called the 1-Yr. T-Bill. You can find the current T-Bill rate on many websites like HSH Associates or in the Wall Street Journal
Index + Margin = Fully Indexed Rate
(current 1 Yr. T-Bill Rate) + (percentage, usually 2.75%) = Interest Rate
Index = 1.3%(as of Oct 2003) + Margin of 2.75% = Fully Indexed Rate = 4.05%
Other benefits of the fha arm (adjustable rate mortgage) is that you can "streamline refinance " to a FHA fixed rate mortgage at anytime.
Borrowers must qualify for one-year ARMs using the mortgage payments based upon the contract or initial interest rate plus 1 percentage point (i.e. the anticipated maximum second-year interest rate) if the loan-to-value ratio is 95 percent or greater.
Click on the title to learn more about that program:
Standard fixed rate (FHA 203b )