Adjustable-rate mortgages "are tied
to an index which is a measure of the lender's
cost of borrowing money. As the index rises,
so will the interest rate on the adjustable
loan," according to Dian Hymer, author
of "Buying and Selling a Home, A Complete
Guide," Chronicle Books, San Francisco;
1994. v Common indexes include Treasury
Securities (T- Bills), Certificates of Deposit
(CDs), and Libor (London inter- bank offering
rate). Most metropolitan newspapers publish
current ARM index rates.
The interest rate and payment adjustments
may or may not be scheduled = change at
the same time. For example, the interest
rate on some plans changes more frequently
than the monthly payment, which may result
in negative amortization. "This means
that the additional interest will be added
to the principal balance of the loan and
may accrue additional interest itself,"
Hymer says. If the monthly payments on
an ARM are increasing, generally this
is because the index is rising or it is
a negative amortization ARM.
People with adjustable-rate mortgages
wanting to know how their payments are
calculated might contact their lender
or review the language in their loan agreement.
Copyright 1999 Inman News Features
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