I was thinking about taking an ARM loan due to my current tight budget and was told that there are new "InterAgency Guidelines" that change the way ARM loans are underwritten. I was told ARM loans need to take the fully indexed, fully amortized payment into account, but I'm not sure exactly what that means. I'm guessing the index is referring to the index the loan is tied to (in this case, 6-month LIBOR) but is it the index as of today, or some projected index 5 years from now? I'm just trying to figure out what I can truly afford and don't want to be "sold" on what I can afford. 

C. J.
Urbandale
Iowa

Answer:

Dear C.,

The changes you speak of are not from a "whole entire industry" perspective. But, what you speak of is more from a qualification perspective. In your closing you stated you want to be able to make sure you could afford the payment and not be told by the lender what you can afford.

So, just look at the payment and decide what you feel is affordable to you. If you tell the lender your own figure then they can try to find a product to suit your needs. Just be aware that the ARM may only be fixed for a short period and they have a history of increasing. Also beware of putting yourself in a position where you might be unable to remedy a possible interest rate increase in the future.

Before I would personally consider an ARM I would first look into paying discount points. The cost now is higher but if you can fix your interest rate then you may save future closing costs if you need to refinance. Remember, the future rates are unpredictable. The current rates are low. Paying discount point(s) may also be tax deductable.

Greg Phillips
Assistant Manager 
Fairfield Mortgage Company 
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