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Show Page 2 .THE DAILY HERMD,Htnie Maiaf,Fridj, JPebrUaiy W, , 1995 During the past 12 months, Adjustable Rate Mortgages (ARM's) have become increasingly popular, in particular the 1 1th District Cost of Funds Index (COFI) and for a very good reason. As fixed rates have increased, many homebuyers find the only way to afford a monthly payment on the home they wish to purchase is by getting an adjustable rate. But it is also true that these loans may not be appropriate for every circumstance. In the following question and answer format, I will address the most common questions and concerns about adjustable rate mortgage loans. lower payments now, but could handle a higher payment in the future because of expected increases in personal income, or decreases in household expenses. Many borrowers simply feel that by the time their adjustable rate increases, the fixed rates will still be low enough to refinance back to a 15 or 30 year fixed rate loan thus getting benefit from both lower rates now and stable rates in the future. insurance in Utah County really necessary? Is flood The long 'ARM' of the loans Fixed rates are still low, and offer security and peace of mind. HOW IS MY PAYMENT IN- CREASE DETERMINED? The rates rise and fail in conjunction with the index they are tied to. A margin is added to the index, and this becomes the new payment. For instance, if the one index was 6.95 peryear cent, and the margin is 2.75, your fully indexed rate would be 9.7 2.75 marpercent (6.95 index T-B- ill gin). You've seen and read about the damage the floods in the Midwest and California, but did you know that floods occur somewhere in the U.S. every three days or so? Are you prepared if your home were ravaged by flood waters? Most people are not. They assume that any type of water damage to their property would be covered by their home- - WHAT IS A START RATE? As you can see from the above example, the fully indexed rate on a with a 2.75 margin is now T-B- ill WHAT EXACTLY IS AN ARM LOAN? An adjustable rate mortgage (ARM), or variable rate loan, is a mortgage loan in which the interest rate changes periodically. These changes generally move in relation to an index, such as the year Treasury Bill, Libor, 6 month CD, or 1 1th District Cost of Funds, etc. When the interest rate changes, the payment changes accordingly. 9.7 percent. However, anyone 3Maik Greet Financing A Home 1 ARE THERE LIMITS TO THE RATE INCREASES? Although there are dozens of variations, most ARM's have caps, or limits on the amount an interest rate can increase (or crease). The adjustments generally occur on each 6 month or 2 month anniversary of the loan, and can change no more than 2 percent each year. The lifetime cap is usually 6 percent over the start rate. de- 1 5-- WHAT ARE THE TAGES OF ARM's? ADVAN- The most obvious advantage is that the borrower is charged a lower interest rate during the beginning stages of the loan. A rate of 2 percent less than fixed rates on a $100,000 loan amount provides a $2,000 savings for the first year. Another benefit is in loan qualification. Perhapsaborrowerhasdif-ficult- y getting approved for a desired loan amount, and the only answer is to qualify at the start rate of an ARM. Even with the possibility of a future rate much higher than the current fixed rates, many borrow- er's financial situations demand If Another obvious advantage is tied to national statistics. The aver- age person owns their home for 7 years. If you are buying a starter home, or know you will be selling within a few years, then you may not want a long term loan. 5-- WHAT ARE THE DISADVANTAGES OF ARM's? If you have ever experienced payment shock, you know that it's not a pretty sight. Example: Mr. and Mrs Borrower quietly spend a year enjoying their monthly mortgage payment of $800, (and their spending habits adjust accordingly) then within 3 years it finally an caps out at $1 ,428 per month increase of $628 per month. Well, you can imagine if they have not planned wisely, the Borrowers might have difficulty adjusting to the expense. Although most borrowers understand the risk of potential payment increases and plan ahead, some people just would not be happy with an ARM. In my opinion, if the worry and concern over when and if your rate is going to go up keeps you lying awake nights starat your bedroom ing wide-eye- d ceiling, then it's not worth the worry- currently obtaining a loan will not pay this rate, but instead pays according to the starting rate. The starting rate differs between lenders, but is close to 6.5 percent. This only allows yearly increase of 2 percent above the start rate, and a lifetime maximum rate of 12.5 percent. WHAT ABOUT THE COFI LOAN? The 1 Ith District Cost of Funds Index loan (COFI) is rapidly becoming the index of choice for ARMS because it moves slower than other indices. For example, a year ago, most indices were averaging 3.5 percent to 4 percent. is Currently, the one year 6.95 and the Libor is 6.68. The COFI is now 4.367. Other advantages of this loan also include a low qualifying rate, lower lifetime caps and no increase for jumbo loans up to $600,000 (generally, any loan amount over $203, 150 falls into a program and has a higher rate). The slow movement of this loan has a long track record, and does not react quickly to temporary fluctuations in the market. CONCLUSION: While ARMS are not for everyone, if you can benefit by one check out the COFI loan. It is becoming the most popular loan even in Utah! Mark Greer is of n Mortgage. Column suggestions or loan questions are welcome at his office in Jamestown Square, Provo; or by calling er Ath-erto- Vi?lc, J. Jones On Building A Home owners insurance. In fact, according to Money magazine, 38 percent of a group of homeowners surveyed claimed to be insured against loss from floods, but only 14 percent had purchased the special coverage that confers this protection. To protect your home from flood damage you must purchase flood insurance. Damage from flood waters, rising surface waters, sewers or drains and from water seeping from below ground generally are not covered under standard homeowners policies. The National Flood Insurance Program was created by Congress in 1968 to help cope with the rising cost of national disaster relief, and, today, the program insures 2.6 million properties worth $233 billion against flood damage caused by rivers, oceans and streams. Private insurance companies issue the policies, but the flood insurance program itself is underwritten by the Federal Insurance Administration, a department of the Federal Emergency Management Agency (FEMA). Coverage is available in communities that agree to manage and reduce the risks of local flooding. Close to 18,300 communities participate in the program across the U.S., and the premiums are based on risk. Premiums average about you've got collectibles, flaunt them with panache By GARY KRINO gathered their hints during a trip to Bob Timberlake's folksy studio in Orange County Register You might be the best little colin town. But if you don't know how to display all those terribly cool things yoj collect, well, my friends, quite frankly, who gives a Just in time to rescue us all from this nasty dilemma, along comes lector the February issue of Country Sampler's Decorating Ideas loaded with tips about how to display lectibles. col- The Country Sampler bunch North Carolina. Timberlake's a painterhome furnishings designer and is the guy responsible for Lexington Furniture's new home furnishings collection. Bob Timber-lak- e for Keep America Beautiful. Timberlake is also a major-leagu- e collector of folk art, and it shows. So here goes. Tips, inspired by Bob Timberlake, for displaying collections. Don't sit something here, Instead, group similar collectibles together for a dramatic some-thinglhcr- e. display. An armoire, pie safe or entertainment center makes a good place to show off quilts or other textiles. Display with the doors open and hang vintage clothing on the open doors. Properly lighting collections of collectibles can add plenty of drama. Recessed lighting and fluorescent lighting used above cabinets calls attention to countertop displays. Natural lighting can work. too. ..especially for a collection of glassware. Build shelves into a kitchen window or place glass collectibles on window ledges or sills. Collectibles don't have to just sit there. Incorporate them into your decorating scheme by giving them function. Timberlake uses drums as end and coffee tables. Get creative. Anything you like can become a piece of art. Timber-lak- e used a mound of leftover nails mounted on a base and topped with a carved bird to make an attractive folk art sculpture. Don't overlook the bathroom when planning -- cullcctihles $300 a year for ud to $85,000 in coverage. Nationally, less than 20 percent of homes in flood-pron- e areas carry insurance, and the National Flood Insurance Program esti- mates the rate is closer to 10 percent in the states affected by this year's flood. Flood insurance is generally required when buying, building or improving property in an identified flood-pron- e area if the financing is in any way federally connected either directly through loans and grants from federal agencies (FHA and VA loans, EPA grants, etc.) or indirectly through conventional mortgages from a federally regulated or insured bank or savings and loan. But close to 40 percent of the eligible homes do not carry mortgages and many owners with mortgages have simply let their policies lapse. It is up to you to check on coverage for your home and belongings and to keep it current. Talk to any licensed propertycasualty agent or broker about flood insurance for your home; you may want to start with the person who sold you your homeowners or automobile policies since you have a history with the company. The agent can advise you if you need flood insurance and can help you determine the amount of coverage you would need. Also, if you ate concerned about the cost of coverage, consider increasing your deductible. A higher deductible that enables you to get complete replacement coverage is more economical in the long run. CJ Jones is the president of the Utah Valley Home Builders (njcprti(t)Hcroli) 1555 North Freedom Boulevard P.O. Box 717. Provo. Utah 84603 0717 The Home Magazine is published every Friday by The Daily Herald Advertising To place a classified display ad contact: Scott Murray Echo Wright 344-252- 5 344-252- 2 Julie Gardiner 344-253- 6 Craig Shorts 344-252- 8 Deadline is noon, the Friday prior to publication To place news items contact Kevin Niendorf 344-255- 7 To place a classified ad call 0 Kevm Niendorf Scott Murray Echo Wnght Classified Ad Manage Classified Account Executive Julie Gardiner ... Classified Account Craig Shorts Execut-- Classified Account Executive |