Home Loans
The ARM Trap Snaps Shut
(presented by www.refinance-refinance.net - mortgage lenders)
By Martin Lukac
Many homeowners have turned to ARMs as a way to have more home and less of a payment. They are in for a surprise.
Many Americans jumped into option ARM loans that are about to experience skyrocketing payments.
The option ARM has been long called the riskiest and most complicated loan program ever created. With increadibly low minimum payments, many buyers have come into the housing market that wouldn’t have with other products.
Suddenly, the option ARM made it so that anyone could afford a home. But they are about to find that the affordability is short lived.
With an option ARM the less a borrower chooses to pay, the more they owe on their home. Many of the option ARMs taken out in the past two years are starting to reset at much higher payments. Many buyers are experiencing "rate shock," especially those who thought the low installments were fixed for at least five years.
Add that to slowing home price appreciation, and borrowers don’t have much equity in their homes. What’s more, steep penalties prevent them from refinancing on many of these loan products.
Option ARMs are really risky. And they have been fairly easy to secure, often with very little of a down payment.
Banks are showing little desire to raise borrowing standards, despite an increase in defaults in the early months.
"Almost without exception everyone says the option ARM is a great loan," said Analyst Frederick Cannon of Keefe Bruyette & Woods of the banker’s point of view on option ARMs.
Most banks say that it isn’t the lender’s responsibility to help the consumer determine how much they should pay each month.
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