Michael Holigan: Laura and Keith Shoberg didn't want to jump into a house with large monthly payments. They can't afford it right now. Their income is limited. For them, an adjustable rate mortgage, or A.R.M., made perfect sense.
Laura Shoberg: When we relocated out here, I gave up my job in Phoenix, so consequently, we didn't qualify for what we would have had I been working. And we had made the decision that I wasn't going to go back to work for a while. So we had debt accrued on both incomes and it allowed us to have a lower payment and qualify for more house.
M.H.: A number of people are scared of adjustable rate mortgage but don't really understand how they work. Years ago they used to be volatile, but today the loans written are very stable. Here's how it works. Say you purchase a $100,000 home and put 5% down. At the time you close the interest rate is 8%. That fixed rate would give you principle and interest payments of $697 a month. On an A.R.M., your rate would probably be 6%, and the payments $570 a month. That's a savings of $130 every month that first year. A.R.M.'s are tied to indexes like Treasury Bills or Prime Interest Rates. Your mortgage goes up or down depending on what the market is doing. But there is a limit on how far they can move. This is referred to as a cap and it varies from loan to loan. The most common conventional loan cap is 2% annually and 6% over the life of the loan. So on a 6% A.R.M., the most you ever have to pay is 12% interest. On an F.H.A. loan, you get a better deal. The caps can only move 1% a year, 5% over the life of the loan. So the maximum here for that 6% start rate would be 11%. An adjustable rate mortgage can put you into a larger home.
L.S.: We started looking around for houses and then when we sat down to find out what we qualified for, we went "Oops, this isn't going to work!", and the house we were looking for was not overly expensive. Then we found out that there were some options and that was one of them, and yeah, we wouldn't have gotten the house at all if we hadn't gone on an A.R.M..
M.H.: An A.R.M. loan makes some people nervous, but in most cases, long term or short term, you're going to save money with an adjustable rate mortgage.
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Episode 36 1996 - 97 Season
| Winterizing Your Home | Cola to Kill Mice | Brick and Vinyl Siding | Driveway Oil Spots | Decorating with Houseplants | Paper Plate Paint Catcher | Furniture Polish Recipe | Adjustable Rate Mortgages |