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Nancy
Guzman is an Expert Realtor for the Metro Denver Colorado area, who can
help you decide where to live. Because, Nancy understands finding
your special place means taking in many factors that include accessibility
to work, education and recreational activities. It also includes the
size and style of your home, the style of the neighborhood that will make
you feel more at home. All of these factors must come together to
make your new Metro Denver Colorado home, feel like home.
For a PERSON
that wants a New Home and has GOOD CREDIT*, only EXPERT MORTGAGE LENDERS
and EXPERT REALTORS with their Competitive Programs and Rates, will allow
YOU to sleep with confidence while your HOME BUYING TRANSACTION IS BEING
COMPLETED.
*Includes
persons with a past history of bad credit, or you just want to start over
again, and have minimal credit or don't have any credit!
WHAT DETERMINES AN ADJUSTMENT?
CAPS
Life Caps:
Because ARM loans are tied to the economy, they can be
subjected to significant interest rate changes over the life of the loan.
For this reason, the Truth in Lending Law requires that all adjustable
rate mortgages have "life caps". A life cap is the maximum rate
of interest that can be charged for a particular ARM loan. Every ARM loan
must have a life cap that is determined when the loan is made. A life cap
can be expressed in terms of a maximum amount of charge from the initial
interest rate, such as 6.00% above the initial interest rate. In this
instance, using our earlier example, the maximum rate would be 12.13%
(6.00% added to the initial interest rate of 6.13%).
Adjustment Caps:
In addition to life caps, some ARM loans may have
another type of cap, known as an "adjustment cap". This cap is a
limit on the amount the interest rate can change at any one time. The
frequency with which adjustments can occur will be determined when the
loan is made. A common adjustment cap is 2.00%, although a different
percentage amount may be used. Using our example of 6.13%, if the maximum
amount the interest rate could change at the first adjustment is 2.00%,
then the interest rate could go no higher than 8.13%, or no lower than
4.13%, even if the index were to change by more than 2.00%. The idea
behind adjustments to caps is to minimize the financial impact of
adjustments to a loan.
Payment Caps:
There are other ARM loans which are capped in a
different way. These have "payment caps" in addition to the life
cap. This is a limit on the amount that a payment may change at each
adjustment. This type of cap is often expressed in terms of a percentage
that the amount of a payment may change, such as 5.00%, the most it could
increase would be by $50.00. At the next adjustment, the most it could
increase would be $52.50 (5.00% of $1,050.00). If your ARM contains a
payment cap, be sure to ask about the possibility of "negative
amortization". This occurs whenever your monthly mortgage payment is
not large enough to pay all of the interest accruing faster than the
payment can pay it off, this interest is added back to the principal,
causing you to actually owe more at the end of the loan.
DISCLOSURE.
As you can see, there are advantages and disadvantages
to ARM loans. One of the advantages is that ARM loans are generally
offered at lower initial interest rates than fixed-rate loans. Another
advantage is the potential for the interest rate to decline over the life
of the loan, saving you money. One disadvantage, however, is that the rate
may increase over the life of the loan, which would mean that you would
end up paying more.
While ARM loans can be fairly complex, federal law
requires that you receive a detailed disclosure for any ARM loan program
in which you express interest before you make any decisions. This
disclosure will list how the loan may adjust over the course of its term.
It will allow you to see worst case scenarios of what could happen to your
loan payments. Along with the disclosure, you will receive further
information which will explain ARM loans in much greater detail. Your loan
officer will consult with you and help you to understand all of the
different facts and figures and what they represent as a part of the loan.
This will help to guide you in your decision process.
As loan officers, we are happy to assist you. The final
decision is yours. Be sure to weigh the benefits against the risk and
don't be afraid to ask us questions. You may decide that an ARM loan is
right for you.
Buying a home is one of he most significant investments
you will make in your lifetime, but obtaining a mortgage loan can be a
very complicated process. It is important for you to understand all of the
costs and information being presented to you when you are shopping for a
mortgage loan.
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