Understanding ARM loans, and how to avoid PMI.

ARM stands for Adjustable Rate Mortgage. There are various types of ARM products with the most common being the 1/1, 3/3, 5/1 and 7/1 ARM. The first number tells you the length of time the Rate will be locked. The second number indicates the length of the adjustment period after the initial rate lock period. For example, the 7/1 ARM has the rate locked for seven years or 84 months. Then it will adjust annually thereafter. ARMs can be amortized over 15, 20 or 30 year time periods which can allow for lower monthly payments.
One fear that most consumers have is that the rate can adjust. However, most ARMs come with caps which are usually 2% per year or 6% over the life of the loan. This means, during the first adjustment period, the rate can't go up or down more than 2%. Let's look at the 7/1 ARM again. If the initial rate is 5.25%, then the rate can't go higher then 7.25% at the end of the initial rate lock period of seven years or 84 months.
ARM rates tend to be initially lower than fixed rate mortgages. If you plan on only being in your home for 7 to 10 years, lock in a 7/1 ARM and take advantage of the lower rate versus a 30 year fixed rate mortgage. Everyone's situation is different, but the average life of a mortgage loan ranges from 7 to 12 years because people often move or refinance their loan. So, why not enjoy the lower rate?Avoiding PMI With gas prices soaring and bills piling up it is important to save money any way possible. The same is true when financing a home. All loans are not created equal. Some loans have costs that you should avoid. One of those costs is PMI. In my opinion you should avoid this cost whenever possible!Private Mortgage Insurance (PMI) is insurance that the lender requires on loans that have less than 20% down payment. This can cost you somewhere between 80-200 dollars per month! This could put the house of your dreams out of your budget. Luckily, in most cases, there are ways around these extra costs.
The best way to avoid PMI is to find a lender with programs that finance above 80% with out charging PMI. At Fifth Third Bank I have the ability to finance loans up to 100% without charging PMI. These loans do have guidelines that you must qualify for but if you do meet the criteria then take it! You could end up in your home with no down payment and no PMI. If you don't qualify for these programs don't worry, there is another way!You can also avoid paying PMI by doing an 80/20 loan. This type of loan splits the financing up into two different loans. You can think of this as borrowing money from the bank as a down payment. You will be carrying two loans at two different interest rates.
The first mortgage, which would make up 80% of the purchase price, will be on a lower rate. The second mortgage will be on a slightly higher rate, but your payment will be lower than choosing a loan with PMI. The second mortgage is also tax deductible. PMI is NOT tax deductible!The name of the game is saving money! When you are shopping around for a mortgage make sure you ask your loan officer about special programs that avoid PMI. If you cannot qualify for these then ask about their 80/20 programs. Mortgage shopping can be confusing and frustrating, but it doesn't have to be. Find a lender who wants to save you money. Good luck and happy shopping!Loans in the Northeast Ohio area: If you're shopping for a home in Ohio, here are the newest programs available. Good Neighbor - 100% financing available so your customers won't need to put any money down. The greatest part about this loan is there is NO PMI. This program is tailored toward first time homebuyers so the interest rate is reduced to help keep their payments low!Stated Income - This loan is perfect for customers who are self-employed. Sometimes it's hard to get qualified as a self-employed borrower because of all the tax right offs. This makes the home buying process a breeze for these customers.
IncomeInvestment Property - 90% financing available for rentals or investment properties!Home Possible 100 - I'm sure you have your fair share of customers in the teaching, law enforcement, Fire department and medical field right? Well this program provides special benefits to those employees for contributing to our communities!FHAVA - These government loans are always in high demand and we have a separate underwriting department specialized for these programs so we can make sure they are done quick and painless!With all of these great new programs I am sure you will be able to find one that fits your needs. Feel free to contact me or email me by visiting my website.

ABOUT THE AUTHOR
Cecilia Sherrard is a full time dedicated Realtor in Northeast Ohio. With years of experience and knowledge, she has maintained a multi-million dollar producer status.   Visit her website at http://www.youshouldown.com you can also view her Real Estate tips at http://www.youshouldown.com/realestatetips.asp