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TERMINOLOGY
FHA single family adjustable rate mortgages are loans that are backed by the Federal Housing Administration to help people realize the dream of homeownership.
Understanding the FHA
FHA single family adjustable rate mortgages are not written by the federal government. Instead, they are insured by the Federal Housing Administration and funded by private institutions.
Through the department of Housing and Urban Development, the government backs not only FHA single family adjustable rate mortgages, but also standard fixed rate loans.
What an adjustable rate mortgage
FHA single family adjustable rate mortgages are simply loans that do not have a fixed rate for the entire life of the loan. This means the interest can adjust up or down depending on a number of factors. In most cases, the starting rate of FHA adjustable rate mortgages is lower than a fixed, which can make it a good choice for would-be homeowners who don’t plan to stay in a home for long or expect earnings to increase in the future.
FHA adjustable rate mortgages have four basic components. They are:
- The index;
- The margin;
- The rate cap structure;
- The initial interest rate period.
The components come together to tell a homeowner what interest payments will be like in the future. Once the initial rate period passes on FHA single family adjustable rate mortgages, the new interest rate is figured out by adding the margin to the index. The cap provides a little protection over dramatic rate increases.
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