ARM is an Adjustable Rate Mortgage. So many time time customers freak out when they know that their loan is ready to adjust. Some even think that there loan is going to balloon to 12, 13, or 14 percent interest rates. When no information is given or no one took the time to explain how an ARM actually works a creates a fear of the unknown . So the general public has developed a preconceived notion. Today I will show you why your rate rises and in some cases will fall. In April 1,1987 the interest rate was 7.75%. So lets say you were 2 points over prime your that would make your interest rate 9.75. Now 6 Months later in October the prime rate is 9% so now your interest rate is now 11%. The one thing that I want you to see that the rates
don't jump in leaps, it rises in increments.
The prime rate history does not stay high and will not stay low, it will be like time, consistent. The ARM is directly related to the Prime Rate (The
prime rate is defined by The Wall Street Journal as "The base rate on corporate loans posted by at least 75% of the nation's 30 largest banks."). Above is a Prime Rate history so you can see the fluctuations of the prime rate. So when you are offered an ARM its based on so many point over prime. The better your credit history the better your interest rate will be.
So even if you have an ARM, and can not refinance your loan here is the key. An extra $10 or $20 dollars a month can help you to not only pay your loan off 4 to 8 years sooner, but it can also help you control how much money you pay in interest!
If you have your truth and lending paper work nearby take a look at it, you will pay over 2.5 times the actual loan amount. So if you borrowed $100,000 in 30 years you will pay
about $270,000.