I saw a quote on another post and wanted to cover some basic information.
True the fixed rate may never increase but if you understand the ARM you can do just fine. You just have to know, and consequently follow the term of the loan. If you do a 3/1 arm you would not have an increase for 3 years. I don't hold property normally for longer than 3 years anyway. If I planned to hold longer than 3 years I will refinance or get a credit partner to do a refinance with me.
Another part of the ARM to consider is the Index. The index is what the interest rate follows. So, if the Index goes up so does your interest rate. Each index is different, some aggressive in movement, others move slow but in large strides.
Here is a list of common Indexes:
- Prime Rate
- Cofi (said coffee - which is the cost of funds index)
- Libor (London Inter Bank Offered Rate)
- CMT (constant maturity treasury)
Another you may find but that are harder:
- CD's (certificate of deposits)
So if you understand the loan, your options and what is happening, ARM's are not bad. The credit problems we have right now are because people were put in houses they could not afford - the ARM's are just additions to this.
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