Talk:Variable-rate mortgage

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I believe these mortgages were central to the current (2008) difficulties in the USA housing market. This should be mentioned. AThousandYoung (talk) 13:49, 21 March 2008 (UTC)

I have to respectfully disagree here. A variable rate mortgage is usually associated with a home equity line of credit and is based upon the prime lending rate. Adjustable rate mortgages, ARM's, are based on LIBOR and usually associated with first mortgages. An ARM will adjust based on a set percent on a pre-determined schedule, while a variable rate mortgage will adjust when the FED decides to adjust prime. An example of an ARM would be a 6% 3 year ARM with an option to adjust no more then 2% each year following. So the first 3 years would have a rate of 6% and after that it could adjust as much as 2% per year, although they typically have a cap of increasing no more then 6% over the life. This mortgage could get as high as 12%. Furthermore there are specific types of ARM's which are even more dangerous. An example of this is an Interest-Only ARM in which the borrower can pay nothing but interest intitially. The problem with this is that if a person can barely afford to pay interest-only at 6%, then they will have no chance of making a principal plus interest payment at 8% or higher. Finally, the last distinction to be made is that the loans which are considered "sub-prime", due to poor credit history of the borrower, are the loans that are most to blame for the existing crisis.

A variable rate mortgage is a self-amortizing mortgage, with the interest rate set by the lender, who can change the rate at will. I believe that there is worth is keeping this type of mortgage distinct from Option ARMs and the like, even if they share common features. Me mi mo (talk) 23:50, 27 January 2009 (UTC)