ARMs offer both advantages and disadvantages. Unlike a fixed-rate mortgage, an ARM provides interest rates that change periodically – and payments that go up or down accordingly.  At first, lenders generally charge lower interest rates for ARMs and this makes an ARM easier to afford initially.  If interest rates remain steady or move lower, this can work to your long term advantage. It is important, however, to weigh the risk that if interest rates increase in the future, so will your monthly payments. 

The initial rate and payment on an ARM will remain in effect for a limited period–ranging from several months to 5 years or more. After this initial period, the interest rate and monthly payment may change at regular intervals – every month, every year, every 3 years.   This period between rate changes is called the adjustment period.

The interest rate on an ARM is determined by two things: the index and the margin. The index is usually a standard measure of interest rates and the margin is an extra amount that the lender adds. If the index rate goes up, so does your interest rate and monthly payment.  On the other hand, if the index rate goes down, your monthly payment may go down. Not all ARMs adjust downward, however so be sure to read the details about any loan you are considering. 

Lenders base ARM rates on a variety of indexes. You should ask what index will be used for your ARM, how it has fluctuated in the past, and where it is published.  

The margin may differ from one lender to another, but it is usually constant over the life of the loan. The fully indexed rate is equal to the margin plus the index. For example, if the lender uses an index that is currently 4% and adds a 3% margin, the fully indexed rate would be 7%.

Some lenders base the amount of the margin on your credit record – the better your credit, the lower the margin. In comparing ARMs, look at both the index and margin for each program.

An interest-rate cap places a limit on the amount your interest rate can increase. Interest caps come in two forms: A periodic adjustment cap, which limits the amount the interest rate can be adjusted up or down from one adjustment period to the next, and a lifetime cap, which limits the interest-rate increase over the life of the loan.  By law, virtually all ARMs must have a lifetime cap.

In addition to interest-rate caps, many ARMs limit, or cap, the amount your monthly payment may increase at each adjustment.  A payment cap can limit the increase to your monthly payments but also can add to the amount you owe on the loan. This is called negative amortization.

If you are considering an ARM, ask yourself: 

– Is my income enough–or likely to rise enough–to cover higher mortgage payments if interest rates go up? – Will I be taking on other sizable debts, such as a loan for a car or school tuition, in the near future? – How long do I plan to own this home? If you plan to sell soon, rising interest rates may not pose the problem they do if you plan to own the house for a long time. – Do I plan to make any additional payments or pay the loan off early?

 

Golden Rule:  Before you consider any loan, ask questions and read the details. For information and news please visit Loan Modification Help Center

Let’s debunk the myth about bad credit.A lot of people think that fixing your credit score is a question of time, changing lifestyle, sticking to a tight budget and eventually paying off your debt in full. This formula works in most of the cases. But in reality there are far easier and faster ways to raise credit score. Simple credit tricks can help fix credit and boost credit score with more than a hundred points within a few months.
A smart approach to fixing credit includes:
1 Paying off late payments first. Nothing affects your credit more adversely than past due and late payments. That’s why they should be your priority when trying to fix credit.
2 Managing your level of debt and transferring balance when necessary. Let’s say you have two credit cards with 2,000 $ limit each. The balance on one of your cards is 0 $ and the other one is 1200 $. Such balance will work against your credit score. Ideally credit balance should be kept below 30% of your credit limit. In this case this is less that 600 $ on each card. What you should do is transfer 600 $ to the card with 0 balance, so this way both cards have balances that fall below the dangerous zone.
3 Do not close old credit cards. The length of credit history is important when credit bureaus determine your credit score. Closing old cards that you are no longer using could result in “erasing” a part of your credit history. Less credit history means less credibility according to credit report bureaus.
4 Paying off collections in full may not help your credit score. It is a paradox, but it can actually lower your credit score. When payment is made on a collection account, collection agencies update credit bureaus to reflect the account status as “paid collection”. In order to clear the collections altogether from your record, you have to call the collection agency prior to making payments and explain that you will pay off your debt only if they withdraw the collection from the credit bureau reports
5 Take a good look at your credit report. If there are any errors or inaccurate information, dispute them immediately
These are just a few credit tips that can help fix credit and raise score fast. Of course there are many other tricks and well kept credit secrets that can produce amazing results in no time

ClICK HERE TO LEARN ABOUT LITTLE KNOWN CREDIT REPAIR SECRETS

The new housing plan announced by President Obama last week has two main parts.  First, there is a $75 billion loan modification plan and, second, there is a program that helps borrowers who are not in danger of defaulting refinance their mortgage.  

These are some of the key questions to ask to determine if you can benefit from the plan:

Do I have to fall behind on my loan payments to be eligible for a loan modification?
No.  Borrowers must simply demonstrate that they are in danger of falling behind on their mortgage and that they don’t have sufficient income to make future mortgage payments.  Borrowers with ballooning mortgage payments or interest rates that are resetting may benefit from the new plan.

What are the loan modification requirements?
To be eligible for modification under the plan, the loan must be a first mortgage on the borrower’s primary residence.  Borrowers must currently be paying more than 31% of their monthly gross income toward mortgage payments. Jumbo loans that exceed Fannie or Freddie loan limits are not eligible. Ultimately, your eligibility will be determined by your mortgage lender.

What if I am “under water” and my mortgage is more than the value of my property?

As long as the amount owed on a first mortgage does not exceed 105% of the home’s current value, borrowers with limited equity can refinance into a 30-year or 15-year fixed-rate mortgage.  This refinance option is open to only to borrowers with conforming loans that are owned or guaranteed by Fannie Mae or Freddie Mac.  Borrowers must show that they are current on mortgage payments and that they will be able to meet the new mortgage payments.

How do I know if my mortgage is owned or guaranteed by Fannie or Freddie?
The White House will release full eligibility details on March 4, when the program begins, and it is recommended that borrowers contact their lender at that time to see if their mortgage is owned or guaranteed by Fannie or Freddie.

Does my lender HAVE to participate in the program?
No. Participation by lenders is voluntary, but the government provides subsidies to encourage lenders to modify loans. For example, mortgage servicers receive $1,000 for each loan modification and can also get another $1,000 annually for three years if the borrower stays current on the loan.

To learn more about loan modification options, visit www.loanmodificationhelpcenter.org