August 15, 2012
Did you know the FHA offers Adjustable Rate Mortgages (ARM loans) for qualified borrowers? These loans feature lower introductory rates for at least one year, with interest rate adjustments specified over a period of time agreed upon between the borrower and lender.
FHA ARM loans may feature an introductory rate fixed for one year or up to as many as 10 years depending on the terms of the loan. When the introductory period is over, the loan’s interest rate may be adjusted between one and two interest rate points with an interest rate cap over the lifetime of the loan of up to six points, depending on the loan.
According to FHA.gov, “The lender and borrower negotiate the initial interest rate and margin. The margin must be constant for the entire term of the mortgage. The interest rate remains constant for the initial period (either a 1, 3, 5, 7, or 10 year period, depending on the ARM) and then may change annually for the remainder of the loan term.”
Because of these changing interest rates–the very nature of an FHA ARM loan–the FHA has special rules to insure transparency in lending for this type of loan. HUD 4155.1 Chapter Six, Section B instructs the lender;
“When the borrower applies for an ARM loan, the lender must provide him/her
with a written explanation of the
–nature of the proposed obligation, and
–features of an ARM, consistent with the disclosure requirements applicable to variable-rate mortgages secured by a principal dwelling under the Truth-in-Lending Act (TILA),
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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