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Arm Mortgage Approval


CRAIGER7204
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I have heard so many things about getting an adjustable rate mortgage. mostly to stay away from them. I am in the process of repairing my credit. will probably be a year or so before i am finished. My score is too low to get a mortgage. But My wife has excellent credit and she was approved for a mortgage without my name on the application. We only showed my income as part of her income.

We (She) were approved for a 5/1 at 5.25%. I am told that this means the rate is fixed for the first 5 years. then it can adjust every year up or down. We dont plan to sell the property but we would refinance before the 5 year mark. as soon as my credit is ok, we will refinance and put my name on the mortgage.

Depending on the rate I can get, maybe we will wait till the "fixed rate we were given goes to an ARM.

Does this sound like a good idea?

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ARM in themselves are not evil. It is how you use it. My primary residence is in a 5yr ARM at 5.00 from a 2005 purchase. Not only that but it is an interest only ARM. We did our homework and chose that product fully knowing the costs and benefits to the 60month lock with no automatic amortization taking place. It has worked out wonderfully and has, in part, allowed me to allocate more money towards saving and investment elsewhere.

See what rate she can get on a 30 yr fixed. If the difference between the 5/1 and the 30yr warrants use of the ARM keeping in mind all factors, such as length of time you will stay, current and future income, what you will do with the "savings" created every month by using an ARM, and your credit repair process, then go for it. Just keep in mind that once the 60 month lock expires, then payments will rise, possibly substantially. So be prepared in case you stay there and can't/don't move.

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My oldest mortgage is an FHA ARM. I like it too! It is getting ready to adjust lower to 4 7/8% in May. Over the past thirteen years the rate has been as low as 3.875 and never higher than 6.875.

The main reason for this is an FHA ARM can only adjust 1% per year and no more than 5% lifetime.

Almost all Fannie and Freddie ARMS have 2/6 caps, which means there can be up to a 2% increase or decrease per adjustment period and no more than 6% lifetime.

You also need to know the adjustment periods. I think the majority are one year, but there are some that can adjust every six months. You need to be aware.

Bad case scenario has been presented in the past three years, where interest rates were rising, and if payments were to adjust every six months at 2%, it can be a 4% rise within one years time. Not too many budgets can handle such extreme changes. In the past several months, interest rates have been falling, so it is causing less burden, because of lower interest rates.

You will also need to know about the INDEX which your ARM is tied to. Mine happens to be the One Year Treasury Note (currently about 2.10%). Then there is a MARGIN (FHA is 2%). If you take the index plus the margin you end up with (2.10 + 2.00 = 4.10 but rounded too the nearsest eighth) 4.125% true rate. My personal interest rate is higher because the current rate is 5.875 and can ony adjust one percent. If the loan had a 2% cap, then the rate would fall to the 4.125% rate mentioned above (maybe, because one year ago the rate may have been even higher than the 5.875%).

Then there is the pesky subprime rate adjustments that has caused the meltdown. These loans had (have) terms like 3/2/7. The first number indicates how much the intial rate can adjust. The second number is how much the rate can adjust each period after the initial rate adjusment and the third number is the maximum lifetime rate adjustment. Many, if not all, of these laons were made at discounts, meaning the index plus margin was higher than the interest rate consumers received. The margins were very much tied to credit scores. The lower the credit score, the higher the margin. It was almost guaranenteed that the interst rate would increase the full 3% at the first rate adjustment. Not good news, as we are seeing now.

I hope this gives you a little primer on ARMS.

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My oldest mortgage is an FHA ARM. I like it too! It is getting ready to adjust lower to 4 7/8% in May. Over the past thirteen years the rate has been as low as 3.875 and never higher than 6.875.

The main reason for this is an FHA ARM can only adjust 1% per year and no more than 5% lifetime.

Almost all Fannie and Freddie ARMS have 2/6 caps, which means there can be up to a 2% increase or decrease per adjustment period and no more than 6% lifetime.

You also need to know the adjustment periods. I think the majority are one year, but there are some that can adjust every six months. You need to be aware.

Bad case scenario has been presented in the past three years, where interest rates were rising, and if payments were to adjust every six months at 2%, it can be a 4% rise within one years time. Not too many budgets can handle such extreme changes. In the past several months, interest rates have been falling, so it is causing less burden, because of lower interest rates.

You will also need to know about the INDEX which your ARM is tied to. Mine happens to be the One Year Treasury Note (currently about 2.10%). Then there is a MARGIN (FHA is 2%). If you take the index plus the margin you end up with (2.10 + 2.00 = 4.10 but rounded too the nearsest eighth) 4.125% true rate. My personal interest rate is higher because the current rate is 5.875 and can ony adjust one percent. If the loan had a 2% cap, then the rate would fall to the 4.125% rate mentioned above (maybe, because one year ago the rate may have been even higher than the 5.875%).

Then there is the pesky subprime rate adjustments that has caused the meltdown. These loans had (have) terms like 3/2/7. The first number indicates how much the intial rate can adjust. The second number is how much the rate can adjust each period after the initial rate adjusment and the third number is the maximum lifetime rate adjustment. Many, if not all, of these laons were made at discounts, meaning the index plus margin was higher than the interest rate consumers received. The margins were very much tied to credit scores. The lower the credit score, the higher the margin. It was almost guaranenteed that the interst rate would increase the full 3% at the first rate adjustment. Not good news, as we are seeing now.

I hope this gives you a little primer on ARMS.

So does that mean that my 5/1 ARM can only adjust 1% per year and a maximum of 5% over the life of the loan? it will start at 5.25% then can only go up to 6.25% after the fixed rate period.

ING tells me that it is fixed for the first 5 yrs. then it goes to ARM. so maybe 5/1 means that first 5 yrs are fixed then it can go up 1% per year after that?? its so confusing. I just dont want to get screwed. I plan on doing a refi before it goes to an ARM but just incase I don't is that how it works??

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5/1 only indicates that it is fixed for 6o months (5 years), and that the rate will readjust every year (1 year) thereafter.

Keep in mind that it is possible that your rate could adjust downward, as the previous post indicated. The 2 yr treasury note has plummeted and if tied to a short term index like that, it would move substantially with short term rates. You need to know what index you are tied to.

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