Definition of 3/27 Adjustable-Rate Mortgage – 3/27 ARM
A type of 3/27 Adjustable-Rate Mortgage – 3/27 ARM frequently offered to subprime debtors. These loans are designed as short-term financing vehicles that give debtors time to repair their credit until they are able to re-finance into a home loan with more favorable terms.
Brief Explanation of 3/27 Adjustable-Rate Mortgage – 3/27 ARM
3/27 loans have a three-year fixed-interest-rate period after which the eye amount starts to float based on an index plus a margin (known as the completely listed attention rate). There is a good venture that the completely listed attention amount will be substantially higher than the initial three-year set attention rate; therefore, to avoid payment shock, the intent of 3/27 home loan debtors is to be able to re-finance the home loan before the eye amount starts to adjust.
A common mistake many 3/27 home loan debtors make is a failure to identify the risks associated with such a home loan. Many times they do not identify how much their monthly installments may increase if the eye amount changes. Even if they plan on re-financing before the eye amount starts to move, they fail to foresee future economic conditions that might make re-financing difficult.