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Revisiting the Adjustable Rate Mortgage in 2011

Do LGBT borrowers still risk an arm and a leg by taking out an ARM?.

Despite the notorious reputation they earned in the wake of the subprime mortgage crisis, adjustable rate mortgage or ARM loans do have some compelling and redeeming qualities. Right now they offer incredibly cheap rates, and thanks to better regulation of the mortgage industry they are not the same treacherously dangerous products that they were a few years ago. So now is a good time for LGBT borrowers to take another look at the ARM. .

Even the FHA, with its longstanding reputation for being rather conservative, fair, and protective of the consumer, offers some attractive ARM products. Plus today’s adjustable rate mortgages contain built-in safety mechanisms to ensure that LGBT borrowers don’t get ripped off as they did in the past by predatory lenders and exploding loans. .

The problem with ARMs is that they can adjust upward if overall interest rates trend higher. If the ARM rate suddenly accelerates, so do the homeowner’s monthly payments. That happened to millions of consumers within the past five years, and many LGBT borrowers woke up to find that their house payments had doubled overnight. That’s a nightmare for any homeowner, and it helped to usher in the biggest credit crisis in modern times..

To prevent a repeat of that dark chapter in financial industry history, Congressional legislators, federal regulators, and a slew of other mortgage industry police crafted and passed new laws and implemented stricter rules and policies regarding ARMs. Now that those regulations are being enforced, the market for ARM loans is an animal of a different color – and a much tamer beast..

-      Today it is possible to get an ARM with a cap that ensures, for example, that the interest rate will not rise more than one percent in any given year. .

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-      Not only that, but many ARM loans have caps or ceilings that guarantee that the rate of the mortgage cannot rise more than five percent over the entire lifetime of the loan. .

-      Those are some pretty strong safety mechanisms, and they are spelled out clearly in the legal terms of the loan so that nothing is left to blind chance as it was a few years ago..

Once the risk factors have been brought under control the discounted prices of ARM loans begin to look much more rewarding and competitive compared to their fixed rate counterparts..

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-      In recent weeks, for example, fixed rate 30-year mortgages have been offered at rates that hover right around five percent. That’s a tremendous bargain when compared to most rates over the past 30 or 40 years, so most LGBT borrowers don’t feel the need to look at other mortgage products..

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-      But those who shop around will find that adjustable rate mortgages are going for less than four percent. That means that a borrower buying a median-priced home can save $250-$350 per month by using a 5-year ARM instead of a fixed rate loan..

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-      Cash savings of $3,000-$4,000 a year makes sense at a time when LGBT consumers are struggling to make ends meet. So in some cases a carefully chosen ARM is a potentially superior mortgage finance solution. .

Nobody can afford to ignore a financial product that offers a robust return with controlled risk, especially during a challenging economic cycle. For that reason, LGBT borrowers may want to at least weigh their ARM options before deciding which mortgage product is best for them. The only way to determine whether it is a good deal or a hazardous approach to borrowing is to evaluate the ARM thoroughly while comparing and contrasting it with fixed-rate mortgages. .

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-      Using the maximum rate caps on the ARM to do the calculations, determine what the monthly mortgage payment will be if the ARM rises as high as it possibly can. That’s the worst case scenario. .

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-      Then decide whether that outcome is still manageable. But don’t assume that refinancing out of an ARM or any other loan, for that matter, is an automatic option. .

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-      Consumers learned during the latest housing crisis that it is not always as easy as it sounds to shift out of a troublesome loan, especially when credit tightens and home prices stagnate or fall. .

If an ARM still looks viable and sensible after factoring in that kind of downside potential, then there is a good chance that it may be a really great way to borrow. .

Several years ago the ARM market was so chaotic and corrupt that it really didn’t deserve a second look. But ARMs have changed, and LGBT borrowers shopping for a home loan owe it to themselves to investigate all of their mortgage options. They may discover that there is a prudently designed ARM that is not just inexpensive but also financially and legally sound. It could, in fact, be the ideal product to meet their needs. .

To find real estate and mortgage professionals dedicated to active support of the LGBT community, visit www.GayMortgageLoans.com and www.GayRealEstate.com, or call toll free 1-888-420-MOVE (6683)..