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Financing
Your Home >ARMs
Here
is a tip for those who are shopping for Adjustable Rate
Mortgages (ARMs): the "margin" is almost as important as the
initial rate. The margin is the percentage point above the
average yields for Treasury notes on which future rate
adjustments will be calculated.
Let's compare two
hypothetical one-year ARMs. The first may have an initial
interest rate of 7% with a 2.5 margin, while the second
begins at 6 7/8% with a 2.75 margin. Both loans have rate
caps of 2%. Suppose that at the end of the first year of the
loan, the average of the one-year Treasury note yield has
been 5 1/2%. For each loan, the lenders will add the margin
to that 5 1/2% average yield. Thus the interest rate for
first loan would increase from 7% to 8%, and the second
would go from 6 7/8% to 8 1/4%. While the first ARM had a
slightly higher initial rate, it will have lower rates in
subsequent years, unless the Treasury note rates increase
enough to activate the annual caps on the amount of the
increase. There is a wide variance among margins in ARMs
offered by competing lenders, and this should be a factor
when you decide on your loan.
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| Q |
Where
is the world's oldest castle located?
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| A |
The
castle at Gomdan, Yemon, dating from before A.D. 100,
is considered the oldest castle; it originally had 20
stories. |
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- NUMBER1EXPERT™ 
