Adjustable-Rate
Mortgages (ARMs)
What goes up, must come down. And that's
basically the principal of ARMs. The
interest rate you pay is adjusted from
time to time to keep it in line with
changing market rates. This means when
interest rates go up, your monthly home
loan payments may go up. And, when interest
rates go down, your monthly home loan
payments may go down.
Now that might sound frightening
if you've ever lived in an era when
interest rates shot up dramatically.
But Countrywide's ARMs have built-in
features that reduce the risk your
rate will ever go too high.
ARMs are attractive because they
offer start rates that are lower than
the interest rates of fixed rate home
loans. This typically enables you
to begin with lower monthly payments
and qualify for a larger loan.
Reasons
an ARM might be right for you: |
| You are planning
to move in a few years and consequently
aren't concerned about possible
rate increases. |
| You're confident
your income will rise enough in
the coming years to handle any
increase in payments. |
| You need a lower
initial rate to afford to buy
the home you want. |
How ARMs work:
 A
start rate, also known as the initial
interest rate, gives you a special
low monthly payment for
a set amount of time (such as 1 year).
After
the start rate period is over, your
interest rate is based on the performance
of a financial index, such as the
average interest rate or yield
on Treasury bills. For a better understanding
and a historical perspective,
see ARM financial indices.
How
often your payments are adjusted based
on the index, and how much
rates and payments increase at each
adjustment, depends on your
loan terms. A 6-month ARM adjusts
every 6 months. A 1-year ARM adjusts
once a year.
At
each adjustment, the new rate is computed
by adding the margin — a
predetermined amount that remains
the same for the life of your loan
— to your financial index. Example:
If the interest rate for the financial
index was 5.5% and your margin 2%,
then your rate at the time
of adjustment would be 7.5%.
Two
"caps" may put a limit on
the maximum amount your rate can increase.
The periodic cap sets the maximum
your rate can go up from one
adjustment period to the next. The
life cap sets the maximum interest
rate for the life of the loan. See
How Caps Work.
Some
ARMs offer a conversion feature that
allows you to convert to a fixed
rate loan at certain times during
your loan.
Fixed period
ARMs
If you're worried by the thought of
your payment going up in 6 months
or a year, or know exactly when you'll
be ready to move to a new home, you
might want to look into an ARM that
protects you against the possibility
of rapid interest rate increases for
a set number of years.
A fixed period ARM starts with a
lower rate than standard fixed rate
loans. Your rate then stays the same
for the first 3, 5, 7, or 10 years,
depending on the fixed period ARM
you choose. At the end of that period,
your interest rate adjusts every year
like a regular ARM according to a
financial index (that's why some lenders
call them 3/1, 5/1, 7/1 and 10/1 ARMs).
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Fixed
period ARMs work for people
who: |
| Plan to be in a
home for a short time |
| Expect to gradually
increase their income and want
a few years at a set payment level
before potentially paying more |
| Intend to refinance
before the adjustment period begins |
Government
Loans
The Federal Housing Administration
(FHA) and the U.S. Department of Veterans
Affairs (VA) offer government-insured
loans. These loans have features that
make them easier for first-time home
buyers to obtain. These features include:
Low
down payments
Flexible
lending guidelines
To get an FHA or VA loan, you apply
through an approved lender like Countrywide.
In fact, we're the number one lender
for government loans. At every one
of our branches, you work directly
with local loan experts experienced
with these loans.
FHA Loan features:
Low
down payment (usually 3% of the FHA
appraisal value or the purchase
price, whichever is lower)
No
maximum income/earning limitations
Fixed
rate and ARM loans available
Insurance
from the federal government replaces
private mortgage insurance
Maximum
loan amounts vary by county —
contact Countrywide for information
on your county
VA Loans features:
No
downpayment loans up to $240,000 for
qualified veterans.
Loans
up to $322,700 available for qualified
veterans with required downpayment
Fixed
rate loans only
More
flexible qualification guidelines
than FHA or conventional loans
For
eligibility information contact Countrywide
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Loans over
$359,650 (Jumbo)
Loans for more than this amount are
called jumbo or non-conforming loans.
They exceed the loan amounts allowed
by Fannie Mae (Federal National Mortgage
Association) and Freddie Mac (Federal
Home Loan Mortgage Corporation) —
two government-sponsored enterprises
that help facilitate the availability
of home loans by investing throughout
the country.
Non-conforming loans typically have
a higher rate and different requirements
for your down payment.
Getting your non-conforming loan
at Countrywide gives you several key
advantages:
Excellent
product mix — we work with a
number of investors to ensure we
can meet all your borrowing needs
Fast
processing (unlike traditional home
loan lenders or banks that require
a committee at corporate headquarters
to review your loan, we can
approve your loan right at your local
Countrywide branch)
Loan
amounts up to $2 million
Reduced
documentation loans
No
income verification loans
No
down payment loans
Investment
properties and second homes can qualify
Loans
to foreign nationals
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