AgentMortgage

What should I look for in an adjustable mortgage?

Mortgage Professor decodes confusing loan marketing practices

"Could you give me the pros and cons of COFI loans?" "My broker said I need a Libor ARM. What is that?" "The loan officer said an MTA loan was the best. Is that true?" These three questions illustrate a common but confusing practice in the way adjustable-rate mortgages (ARMs) are marketed. Loan officers often identify different types of ARMs by the interest-rate index they use. COFI, Libor and MTA are all rate indexes. The sales pitch is based on one feature, often the index itself. This is misleading because ARMs have multiple features, some more important to the borrower than the one being pitched. Here is the list of major features for ARMs that do not permit negative amortization. 1. Index. 2. Initial rate period and subsequent adjustment period. In the trade, these two numbers are usually used to classify ARMs. For example, an ARM on which the initial rate holds for three years and is then adjusted every year is a "3/1." 3. Most recent index value and margin. The sum is c...