What is a ARM?

Posted In: Uncategorized

No, it is not a body part but an acronym for Adjustable Rate Mortgage and it has been getting A LOT of negative press lately.

It seems a lot of Loan Officers were selling these products to homeowners to help them make payments on their dream homes. All was well, for the first year until these homeowners payments started to increase. Then when they went back to their friendly neighborhood Loan Officer to refinance into a new loan they found out that they could not because there was a prepayment penalty attached to the first loan, which increased the amount on the balance that the homeowner owed, therefore making it impossible to do the refi. Now the poor homeowner is stressed out. They can no longer afford the payments. They can not refi. And they can no longer sell the property because it is now a buyers market.  So the DREAM home has now become a NIGHTMARE. What HAPPENED?

1. The Loan Officer either did not understand or did not care what an ARM would do for their client

2. The Homeowner did not understand the implications of the initial low payment for that high priced home.

3. The industry was pushing RATES as the end all and be all of how to evaluate a loan product.  

NOW is the time to get educated about what is going on in the industry and work with professionals who can assist you with this education.