Secret to Wealth #461 – Avoid the Arm

Believe it or not the mortgage industry is bringing back the ARM (adjustable rate mortgage). The utilization of this product was a major factor in the foreclosure crisis of 2007. The banks were milking hard working men and women of the equity in their homes by refinancing ARM’s with new ARM’s charging them thousands of dollars every time the homeowner refinanced their mortgage. ARM’s were originally started to help people with lower credit buy a home. Typically after 2 years the mortgage rate would adjust upward and the homeowner would refinance with a fixed rate mortgage. What the mortgage industry began to do was to refinance the mortgage with another ARM charging thousands of dollars in fees and then repeat it in two years. As soon as the values of homes stopped rising and went down, the homeowner holding the ARM was not able to refinance because they did not have the equity in their home.

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