The Fully Indexed Rate (FIR) has two components, Index and Margin.
The Index will vary monthly. The Margin is set for the life of the loan.
Fully Indexed Rate = Index + Margin (FIR = I + M)
Both Index and Margin terms are set forth in the mortgage note and the ARM addendum attached to the mortgage note. It is critical for the consumer to
understand these terms prior to loan closing.
Trust me, it's all about money.
The consumer is at a lost when confronted with index choices. The lender or third party originator (Mortgage Broker) will market and promote the "Teaser Rate". With a slight of hand and benign neglect, the originator will fail to explain the impact of a rising index on the monthly payment.
Forget about the "Teaser" and focus on the impact of the index over time.
When choosing an ARM lender, it is my recommendation to review the "Good Faith Estimate" (GFE) to determine any rebates associated with different indices.
Choice of the ARM index is the most important decision the consumer has to make at time of loan application. The history of the index will give the consumer an idea of what to expect in a rising or falling financial market.
The choice of index will have a major impact on future mortgage payments.
Choosing the wrong index can cost the consumer thousands of dollars.
It is in the consumer's best interest to investigate the index history. Once the index is chosen, then search the mortgage market for the lowest Margin.
The informed ARM consumer will make good ARM index decisions.
Create competition for your mortgage business and save money.
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