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Adjustable-Rate Mortgage (ARM)

RECENT NEWS
Adjustable Rate Mortgages Could Fuel The Next Wave Of Foreclosures
InvestorCentric  Jun 19  Comment 
The record number of foreclosures may not include a large pool of adjustable rate mortgages that are scheduled to increase in the next few years. This ticking time bomb could cause an aftershock of foreclosures hitting the market in the future,...
Be Careful: Reset of Subprime Adjustable Rate Mortgages will Peak this Month
Kathy Lien  Sep 25  Comment 
The amount of subprime Adjustable Rate Mortgages will peak this month. According to the following NY Times chart, the $50 billion in subprime ARM have already begun to be reset to market rates. This is the largest amount on record and suggests...



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Jason Young

Adjustable Rate Mortgages (ARMs), which have become notorious in recent years with the fall of the housing bubble in 2007, are available in 1, 3, 5, 7 and 10 year terms. These mortgages have a fixed rate of interest for during their initial period, after which the rate adjusts based on whatever index the loan is tied to. During the initial period, the borrower pays a lower rate of interest. For instance, the 5yr ARM may have an interest rate of 5% vs. 5.5% for a 30yr fixed mortgage. At the end of the 5 years however, the interest rate is no longer fixed and is reset. If libor is 7%, then the borrower pays 7%. These mortgages can be cheaper than 30yr fixed mortgages, especially in the beginning, but are also riskier.

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