 Sam
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 Posted: Fri Jul 02, 2004 1:10 am Post subject: Blended Rate Mortgage |
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Blended Rate Mortgage is an adjustable rate mortgage (ARM) which offers a combination of fixed and adjustable rates for an initial period of 3, 5 or 7 years. At the end of this period, the rate adjusts every 6 months according to the LIBOR index plus a margin of 2%.
Features:
- It includes a 25 year LIBOR based ARM with rates adjusted semiannually.
- The combined rate increases or decreases half as much as the rates of conventional ARMs.
- The monthly payments are interest-only and adjustable every 6 months for the initial combined rate period. After the initial term, monthly payments are made towards the principal as well as interest and this continues till the life of the loan.
- The loan amounts can be large. These mortgages are also known as jumbo loans.
- No prepayment penalty is involved.
Benefits:
- Blended rate mortgages help to benefit from lower rates compared to that of fixed rate mortgages for an initial period.
- Borrowers may benefit from rates based on 6 months LIBOR rate. This is because LIBOR has been much lower than the Prime Index.
- With only interest being paid during the initial period, monthly payments are low. So borrowers can easily acquire cash to pay down high cost debts, make home improvements to increase home value, etc.
- Borrowers have the option of paying principal at any time and in any amount, without any penalty. This helps in reducing the loan balance throughout the term of the loan.
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