Why Home Buyers Should Consider Adjustable-Rate Mortgages With interest rates ri

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Why Home Buyers Should Consider Adjustable-Rate Mortgages With interest rates rising, ARMs and interest-only loans could appeal to certain borrowers By Jeff Brown Updated March 29, 2017 2:11 p.m. ET With interest rates on the rise, it may be time for home buyers to take a fresh look at some alternatives to the 30-year, fixed-rate mortgage, which has dominated the mortgage market since the financial crisis. While many out-of-the-mainstream loans got a black eye in the subprime d ebacle, today n shorn of the toxic features such as negative amortization and prepayment penalties that tripped up many borrowers during the housing bubble a decade ago Plan to move Experts say today's adjustable-rate mortgages, or ARMs, as well as interest-only especially suitable for borrowers who expect to move before any rate savings in the early years. They're also useful for sophisticated borrowers wrestling with uneven income, borrowers who expect their income to rise, or borrowers who are willing to bet they can invest their mortgage savings for a greater return elsewhere. increases can wipe out the Many of the mortgage products that some may have thought slipped into extinction, such as interest-only loans, do still exist today, but in far less volume" than in the heyday of subprime era, says Bill Handel, vice president of research and product development at Raddon Financial Group, consultant to the financial-services industry Adds David Reiss, a law professor and academic program director at the Center for Urban Business Entrepreneurship at Brooklyn Law School: "The benefits of non-30-year, fixed-rate mortgages are legion." sweet spot any borrowers can find a sweet spot, for example, in the so-called 7/1 adjustable-rate ortgage, which carries a fixed rate for seven years before starting annual adjustments. With a

Explanation / Answer

Ans c. The mortgage borrower prefer this type of arrangement because they are less risky and also it lends to the loan in the books of the lenders.

And d. The two income ratio that measures the borrower's ability to pay are as:

1. Qualifying ratio.

2. Debt to income ratio.

These are the important for calculating the borrower's ability to pay.

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