Adjustable-rate mortgages are complicated instruments. No one characteristic fully describes one. This is why, when readers ask me for the pros and cons of COFI ARMs, or Libor ARMs, or flexible payment ARMs, I get heartburn. You can't assess an ARM based on only one of its features. But some features are more important than others. If any one feature deserves to be considered the "real price" of an ARM, it is the fully indexed rate, or FIR. Yet ironically, I have never had a reader ask me a question about the FIR. The FIR is the most recent value of the interest rate index used by the ARM (such as COFI or 1-month Libor) at the time the loan is taken out, plus a margin. The margin is the lender's spread over the index, often 2.5 percent to 3 percent, but it can vary widely. On Dec. ...
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