ABSTRACT
Adjustable rate mortgage loans (AMLs) differ from fixed rate loans in that the interest rate charged is not predetermined over the life of the loan—the rate varies according to an index of one of various possible interest rates or “costs of funds” for savings & loans. The monthly payments can go up or down depending on whether the index goes up or down. Lending institutions are adopting AMLs in order to lower their risk of losses on mortgage loans attributable to changing interest rates—with the result that more mortgage money is supplied or made available during periods of rate instability. The basic AML program can attract consumers who are waiting for lower interest rates—even though home buyers can afford the payments for available fixed rate mortgages—because they believe their payments will fall when mortgage rates come down. Some relatively “minor” options can be used to reduce payment fluctuations for the borrower.
