ARM borrowers could face increased scrutiny from lenders
Posted on Monday, January 14, 2013 at 4:29:14 PM
In an effort to make the mortgage industry safer for consumers, one government agency recently implemented new rules requiring lenders to ensure borrowers have the ability to meet the financial requirements of a home loan.
Although this rule will affect all types of home loans, the Consumer Financial Protection Bureau is expected to take a tougher stance on adjustable-rate mortgages.
During the week ending January 10, the average rate for a five-year Treasury-indexes ARM hit 2.67 percent, from from 2.71 percent, according to a report from Freddie Mac. Meanwhile, one-year Treasury-indexes ARMs averaged 2.6 percent, which was a slight decline from 2.57 percent a week earlier.
The main reason borrowers may face additional scrutiny when qualifying for ARMs is because unlike fixed-rate mortgages, their interest rates canincrease from one month to the next, resulting in much more expensive monthly payments. Because, many experts believe lenders will use higher rates to determine if a borrowers financially sound enough to ensure a sudden hike in their interest rate.
There are major differences between ARMs and FRMs. For this reason, prospective borrowers should consult a mortgage comparison chart from Home Loan Investment Bank to ensure their take on a mortgage that meets their personal financial situation.