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©
2002 Ruth E. Campbell. |
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Frequently Asked Questions Buying
a Home - Q & A Q: Tell me more about ARMs?
A: Adjustable-rate mortgages "are tied to an index
which is a measure of the lender's cost of borrowing money.
As the index rises, so will the interest rate on the adjustable
loan," according to Dian Hymer, author of "Buying
and Selling a Home, A Complete Guide," Chronicle Books,
San Francisco; 1994. v Common indexes include Treasury Securities
(T- Bills), Certificates of Deposit (CDs), and Libor (London
inter- bank offering rate). Most metropolitan newspapers publish
current ARM index rates. The interest rate and payment adjustments may or may not be
scheduled to change at the same time. For example, the interest
rate on some plans changes more frequently than the monthly
payment, which may result in negative amortization. "This
means that the additional interest will be added to the principal
balance of the loan and may accrue additional interest itself,"
Hymer says. If the monthly payments on an ARM are increasing,
generally this is because the index is rising or it is a negative
amortization ARM. People with adjustable-rate mortgages wanting to know how their
payments are calculated might contact their lender or review
the language in their loan agreement. |