| 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
to 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 can contact our affiliate Mortgage Broker
or review the language in their loan agreement.
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