Adjustable Rate Mortgage
Michael Holigan: Jodie Hardin got a great deal on her home loan. She got an adjustable rate mortgage, or ARM. Unlike most other home loans, the ARM's interest rate fluctuates. ARM's are appealing because they offer a starting interest rate much lower than most other loans.
Jodie Hardin: I think a 30-year fixed was going around at that time, eight percent, and I got a six and a half. So, I was able to make my payment low enough to where I could afford it versus if I had an eight percent it would have bumped it up a good $100.00 or more.
MH: For an example, say the current interest rate for a conventional loan is eight percent. Adjustable rate mortgages typically start at two percent less. That means for this example an ARM would have an interest rate of six percent. Translation - $100,000 home with five percent down would have monthly payments of $697.00. An ARM's monthly payment would start at $570.00. A savings of $127.00 each month. There is a limit or payment cap on how much your interest rate can rise. On a FHA loan ARM's cannot rise more than one percent a year and a total of five percent over the life of the loan. On an ARM for a conventional loan those figures are two percent a year and six percent for the loan's life. ARM's are adjusted based on economic fluctuations. FHA ARM's are based on treasury bonds. Conventional ARM's are based on other factors. The great thing about ARM's is they don't have to go up each year. If the economy goes down, your adjustable interest rate can also go down. Again, with caps, on FHA one percent a year, five percent over the life. On conventional, two percent a year, six percent over the life. The ARM's of today are great. In most cases over the life of the loan you save more money with an ARM than you would with a fixed rate.
JH: Mom's going to make some iced tea.
MH: Jodie's ARM is paying off. The lower interest rate allowed her to buy a bigger home in a better area for her son. It's an atmosphere young Cameron is really enjoying.
J: He likes it. He's in a stable environment now versus an apartment and the neighborhood and the children and being near his school. That was a big factor.
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Episode 55 1997 - 98 Season
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