How are ARM mortgage holders protected?
Answer:All ARMs have caps - adjustment and lifetime caps, to protect ARM mortgage holders from a sharp payment shock. However, this shock cannot be avoided for long in time of rising rates. As a result, the adjustable rate mortgage payment could double and many borrowers, if they can't refinance, could end up risking their homes.
Federal Protection To ARM Mortgage Holders
Government-backed ARMs, like VA and FHA ARM loans, provide best protection to ARM mortgage holders. For example, VA loan applicants are encouraged to take a short-term ARM when rates are climbing, so that when rates drop again, as they always do, VA ARM mortgage holders will be allowed to convert them into fixed rate VA loans at no cost.
Much the same way, the Federal Housing Administration (FHA) and the U.S. Department of Housing and Urban Development (HUD) have been taking measures to assist ARM and subprime mortgage holders by introducing a variety of steps to assist borrowers and alleviate home loan affordability. As of March 6, 2008 FHA loan limits will vary from $271,050 to $729,750. This is a step taken to help residents of high-cost areas, where FHA mortgage limits were totally inadequate to the high market rates. Thus, ARM loan holders in California who couldn't previously benefit from FHA loans and took much riskier ARMs are now encouraged to refinance at much lenient terms, if they are facing payment difficulties or are delinquent already.
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