Adjustable Rate Mortgages 251

With a ARM; HUD will insure the mortgage, but the interest rate and monthly payment may change during the life of the loan. When writing the loan your rate, discount points, and the term, are negotiated by the borrower and the lender.

When the term is up and the rates are to adjust the one year Treasury Constant Maturities Index this is used in determination of the interest rate. ARM’s have a fixed rate for the first 1, 3, 5, 7, or 10 years of the mortgage. During the term however many years that maybe the rate stays the same. When the fixed payment period is over the rate may adjust. The adjusting rate for 1 year and the 3 year may only adjust by no more than 1 percentage point per year, with a maximum of 5% for the life of the loan. The adjusting rate for the 5 year and the 7 and 10 year ARM may only adjust by no more than 2 percentage points per year, with the maximum of 6% for the life of the loan.

Your lender is required to disclose the nature of the ARM loan at the time you apply. Also you must be informed at lest 25 days in advance of any adjustment to the monthly payments.

The eligibility for a FHA, ARM mortgage is that you must be credit worthy and will be a owner occupant to qualify.