Question:

What is a historical scenario?

Answer:

A historical scenario is an illustration of a sample monthly mortgage payment change over several years for an ARM home loan.

For example, a hybrid 3-1 ARM taken out in 2002 would have the fixed term expired some time in 2005 and the rate has already adjusted at least 2 times. Historical data and a historical scenario for mortgages, provided from some lenders to borrowers, don't prove too effective in future perspective from a consumer's point of view; rather, they can only give you an idea how a particular real ARM loan worked.

However, a worst-case and best-case scenario for the ARM monthly payment, and an amortization table, can give you a hint how your particular ARM would behave in a specific environment and this will assist you in making the right decision.

Historical Scenarios for Corporate Credit Rating

Past historical scenarios can be used to determine repetitive patterns for mortgage loans and other financial instruments. For example, the Standard & Poor's (S&P's) - a corporate credit rating, investment research and risk assessment company has used extreme stress historical scenarios (mainly, the foreclosure levels during the Great Depression) to establish the very first credit rating criteria for companies.

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