Know your mortgage.  Do you have an ARM (adjustable rate mortgatge)?  Are you experiencing higher payments as the months or years go by?  Has it become unaffordable?  Well that is what arms do.  They adjust every so many months or years.  With all of the market changes and the foreclosures that are taking place, I am sure many of you got caught in an arm mortgage that was not affordable.  
            
However, there are good arms and bad arms. 

                      Remember beautiful roses also have thorns!!

I trust that you were informed either while filling out an application, or at closing as to what type of a loan you were getting into.  Remember to always read the documents at closing and know exactly what you are signing.  Is it affordable for you? Some mortgage people or loan officers do not know what is best for their borrower.  They just took the application from them and handed it to a processor not asking key questions as to what was best or affordable for the borrower.  All borrowers are different and have numerous kinds of situations.  For instance--

•  how long do you plan to stay in the home
• will you be transferring with your job?
• will you want to up-grade or down-grade in a few years?
• will you be retiring or wanting to move? 

If you work for a company that will be transferring you in 5 years,  then why would you want to purchase a home with a 30 year fixed mortgage.  Most fixed mortgages have higher interest rates than arms.  You can get 5, 7, and 10, year fixed mortgages that have lower interest rates than a 30 year fixed, but the arms that are 3, 5,  and 7 years are still lower than the fixed rates.  Anytime you can get a lower rate you will save thousands of dollars of interest  plus you can pay more on the principle if you so desire.  This is affordable.

Most borrowers choose an arm mortgage because the beginning payments will be low and they know they will either resell or refinance before the interest rate starts to change.  Most of these arm loans are financed by lenders that sell their loans to other investors. 

There are loans that are in-house portfolio loans, which are offered by small banks and/or investors.  These loans are typically not sold in the secondary market, ie Fannie Mae, Freddi Mac, but the banks will service the loan themselves.  The portfolio loans usually have different guidelines for qualifying.  Typically these loans are called COSI (cost of savings),  CODI (certificates of deposit), COFI (cost of funds index), MTA (Monthy Treasury Average) and LIBOR (London Interbank Offered Rate).  For instance a COFI index rate is 2.74% and the Margin added by the lender is 3.0%, then the fully indexed interest rate would be 5.74%.  The margin never moves but the index rate and your rate can move. 
Index value:

The best way to judge an index is to study its past performance. The historical graph below can help you to get an idea of how the most often used indexes perform over interest rate cycles. 

 
Historical performance of the six most popular ARM indexes. { Obtaining Permission to Reproduce }

 Not feeling comfortable?  Don't panic.  Arms now have features that have "caps" which means the loan cannot have extreme increases throughout the loan.  Most loans will increase 2% per adjustment period but through the entire loan should not exceed more than a total of 6% over the life of the loan.  An example would be the interest rate is 6% and the annual cap is 2% with a life time cap of 6%.  So over the life of the loan the interest rate would go to 12%.  You probably did not get a 6% raise from your company and you could be headed for disaster.  Not affordable!!  This is not a good loan and many subprime companies sold this to borrowers who are now facing a possible foreclosure.  In this case you need to modify your loan as quickly as possible. 

I personally have an adjustable loan myself.  I love it because it is one of those that can go up and also come down.  Plus there are options to make three different payments?  I have had this for 8 years and it is on its way down again.  My loan started at 3% and over the past two years went to 7% but is now on its way back down.  Currently to 5.1%.  When the economy is bad the interest rate goes down.  How fortunate or should I say affordable!!  Let us help you!!

                                   www.EmpireMortgageColorado.com