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Delaware Adjustable Rate Mortgages

John Thomas July 28, 2008 Tags: , , , , , ,
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Delaware Adjustable Rate Mortgages

Delaware Adjustable Rate Mortgages (ARMs) are mortgage loans with interest rates that can change or adjust.  Delaware ARM loans usually start with lower monthly payments than fixed-rate mortgages because they have a lower “teaser” rate.  With a fixed rate mortgage, the interest rate stays the same during the life of the loan which is the entire term. Call 302-703-0727 to apply for an Adjustable Rate Mortgage or for more information.  You can also APPLY ONLINE

For example, a 30 year fixed rate mortgage has the rate fixed for the entire 30 years.  With an ARM Loan, the mortgage interest rate is only fixed for a set period of time and then changes periodically and payments may go up or down accordingly as the interest rate adjusts.

Lenders generally charge lower interests rates on ARMs than on fixed-rate mortgages.  This could potentially save you a lot of money.  When considering whether an adjustable rate mortgage makes sense or not, you must first consider how long you will keep the mortgage loan you are getting.  If you will probably refinance or sell the home in the next 3-5 years than you might want to consider a 5 year ARM.  This would have the interest rate and monthly payment fixed for the first 5 years of the loan.

After the first five years, the interest rate would then adjust either up or down.  The 5 year ARM is typically a lower interest rate than a 30 year fixed rate so you could potentially save a lot of money.

You must consider what your rate could change to after the 5 years fixed period.  All Delaware adjustable rate mortgages are NOT created equal.  Your mortgage lender should explain to you how the mortgage rate will change, how often, what the most it could change at one time and what the lifetime cap on the interest rate would be.  When the rate changes after the initial fixed period or Teaser Rate, the new rate is called The Fully Indexed Rate.  With this information, you can understand what would happen if you still had the loan after the 5 years fixed period.

Delaware Adjustable Rate Mortgages – Qualifying Guidelines

Qualifying for an adjustable rate mortgage is different than a fixed rate mortgage because the mortgage lender must determine the mortgage rate at which to qualify the loan applicant.  The lender first must determine if the ARM loan being originated is either a Qualified Mortgage (QM) or a non-qualified mortgage.

To illustrate how use of the fully indexed rate impacts lending decisions, assume that a creditor offers a consumer a non-QM 7/1 ARM with an introductory rate of 3%, with future rates based on a Margin of 3.5% plus the Index LIBOR, which is 4% at the time that the creditor offers the loan.  The consumer is not eligible for the 7/1 ARM unless he/she currently has the ability to make equal monthly amortizing payments at the fully indexed rate of 7.5%.

If the creditor offered the same consumer a 7/1 qualified mortgage (QM) ARM, the creditor would not have to consider the higher rate that would apply when the interest rate reset because the Qualified Mortgage Rule bases payment calculations on the highest rate of interest applicable during the first five years of the loan term which would only be 3% in this example.

If you would like more information on Delaware Adjustable Rate Mortgages or would like free analysis on an ARM Loan versus a Fixed Rate Loan for the purchase of a new home or the refinance of your existing mortgage, please feel free to call the John Thomas Team at 302-703-0727 or you can APPLY ONLINE HERE.

John R. Thomas – NMLS 38783

Certified Mortgage Planner – Primary Residential Mortgage, Inc.

302-703-0727 DE Office / 610-906-3109 PA Office / 410-412-3319 MD Office

248 E Chestnut Hill Rd, Newark, DE 19713

About John Thomas

John Thomas and his team are long-time Delaware natives. They know the local real estate market as well as they know the loan products that help them serve it. Dedicated to helping first-time buyers; the John Thomas Team are experts on first-time buyer loan programs (FHA, VA, USDA) and conduct monthly first-time buyer seminars that have been attended by more than 3000 Delaware buyers.

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