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.: September 2006 --> The ugly truth about ARMs

The ugly truth about ARMs

» Yikes! More on those Adjusted Rate Mortgages—and how they are going to fuel the bust.

There's no way to camouflage what Harold, a former computer technician who asked BusinessWeek not to publish his last name, is about to face. He's disabled and has one source of income: the $1,600 per month he receives in Social Security disability payments. In September, 2005, Harold refinanced out of a fixed-rate mortgage and into an option ARM for his $150,000 home in Chicago. The minimum monthly payment for the first year is $899, which he can afford. The interest-only payment is $1,329, which he can't. The fully amortized payment is $1,454, which his lender, Washington Mutual gets to count on its books.

(via rc3oi)

 [ 09.07.06 ]

1 Comment

The specific type of ARM this article talks about is Option ARMs. "Normal" ARMs, usually with a fixed period and an adjustable period, do not allow for payments less than the interest-only amount. At least with interest-only, your principal won't increase, but it won't decrease either. with option arms, the difference between the minimum payment and the interest amount gets tacked onto the loan.



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