Much has been said recently about the causes of our current and projected foreclosure rate.
Often vilified by the press as the cause of today’s mortgage mess, is the adjustable rate mortgage. (ARM)
The ARM was originally developed as an instrument to give people, often first time buyers a way to get on the property ladder earlier in life. These were often younger buyers, educated, in the early stages of their careers. These buyers typically had some money down and for their closing costs.
The ARM loan was often offered at a lower interest rate since the lender didn’t have the risk of inflation leaving the lender with a low return loan during periods of higher yields. These loans were typically limited to between 5 and 7 year terms, after which the loan would be renegotiated, refinanced to a fixed rate loan, or the property sold.
The advantage to the buyers is that they would be qualified for the loan on the initial rate, usually less than that of conventional loans. The initial payments were lower, and as their income increased, so did the payment.
The borrowers using these loans had every reason to believe that their income would increase as the loan interest and payments increased.
More recently, ARMs were used to finance borrowers who had minimal or poor credit records, and no real potential of increased income. Additionally, these buyers had little or no money to invest in the property, hence need to get their down payment and closing costs financed. As recent events have made clear, this is a recipe for financial disaster.
Jim Little, Your Sun City Realtor
http://jclittle.com/
Ken Meade Realty
17001 N Del Webb Blvd
Sun City AZ 85373
800-877-1776
623-977-1776
By the way…if you know someone who is interested in buying or selling real estate in the Sun City Neighborhood, Peoria, Glendale or Surprise, please call me with their name and phone number. Thank you!
