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Answers (4)
- Clay Branch, "Georgia Loans"
- Contributions:7839
Right, you are being offered a 3/1 FHA Arm. How this works is your interest rate is fixed for 3 years, then the loan becomes a 1 year arm, it is that simple. A 1 year arm means your rate will adjust each year, could go up or down. Your margin is 2% and the word " fixed " is sort of misleading as all margins are " fixed". The CMT index CAN rise more than 1% in 1 year but the annual CAP holds the YEARLY increase to 1%. In other words, once the CMT index gets off the floor and starts climbing, then your rate will go up too. Yes, your loan balance will be lower when it starts adjusting but if the index climbs in year 4, 5, etc, then you can potentially go to 4.75% in year 4, 5.75% in year 5, etc.Any projected payments beyond the first 3 years are a guess, they may show the rate dropping in year 4 and 5, then climbing but they have no idea what the actual index will be so can not accurately project anything after the 3 year fixed period. Couple of notes, many lenders will have better pricing on a 5/1 Arm which would give you 5 years w/out the potential to adjust but even beyond that, you should be able to get a 30 Yr Fixed rate at 4% paying the same lender credit ( pays your closing costs). ON a $200K loan amount, you are looking at a P & I payment of $926/mo ( 3/1 Arm ) compared to $954/mo ( 30 Yr Fxd ), it just is not worth it to take an Arm. If this is an FHA Streamline, look at the amount you pay per month in mortgage insurance, then look at their payment breakdown and you will see it is much higher.
- TerriFerguson Odland
- Contributions:2
What they are offering is a FHA hybrid 3.75 for the first 3yrs, After the 3 yrs we go to what is called the margin + index our margin is locked in at 2% fixed and is called a "constant maturity Treasury index". Our index cannot increase by 1% per year under any circumstances.
Starting year 4 our monthly payment will be recalculated based on the reduced principle balance. As we pay extr on this loan the principle lowers as does the interest, so our payment lowers also. This is an FHA backed loan. Im tying to explain what im told as best s I can, sorry if my translation is bad :)
Starting year 4 our monthly payment will be recalculated based on the reduced principle balance. As we pay extr on this loan the principle lowers as does the interest, so our payment lowers also. This is an FHA backed loan. Im tying to explain what im told as best s I can, sorry if my translation is bad :)
- Clay Branch, "Georgia Loans"
- Contributions:7839
I agree with Andrew, get a fixed rate. What is the rate you are being quoted for the first 5 years?
- Andrew Adams, "203K Specialist"
- Contributions:9349
Why?
30 year fixed rates are at 4% or below? Fixed for 30 years? A 5/1 ARM with 1 and 5 caps is gamble! No 5 years from now rates will be higher tha today...I am almost willing to gurantee it!
30 year fixed rates are at 4% or below? Fixed for 30 years? A 5/1 ARM with 1 and 5 caps is gamble! No 5 years from now rates will be higher tha today...I am almost willing to gurantee it!
we are talking with someone now about a Hybrid FHA loan. Do you ave any information or advice.
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