Are Adjustable Rate Mortgages (ARMs) any good?

As the government hypes the fact that the Fannie Mae and Freddie Mac bailout has pushed the regular mortgage below 6 percent, why are they still advertising adjustable mortgage rate mortgages, Seeking Alpha don’t believe that ARM’s give any benefit to either the borrower or lender.

It’s always been the case that lenders believed that ARMs provide interest rate protection if their costs increase but this is simply not true according to Seekingapha website. If a borrower is underwritten at the fully indexed rate, their financial behavior will still be anchored to the introductory payment. Unless borrowers are limited from further impediment of their homes (mortgage collateral) during the life of the mortgage, the initial underwriting is pointless. Borrowers will not be ready for higher future payments.

And on the other hand, buyers falsely believed that it was better to pay a lower rate now than buy protection for the future. The new Fed regulations require that borrowers of high cost loans be underwritten at the full indexed rate, but if the rate increases it doesn’t necessarily mean the borrower will be able to handle it.

Different circumstances can change affordability, an income change or extra financial commitments could put pressure on you to find funds to pay your monthly mortgage payment, but higher rates and job loss goether could produce catastrophic affects.

We believe that Freddie Mac and Fannie Mac should not keep accepting ARM’s from banks, due to the present economic circumstances the difference between a variable and fixed rate home loan is less than one point, so it would seem crazy to opt for an ARM mortgage.

Let us know your views on adjustable rate mortgage loans and share with our readers.

Source: Seekingalpha