The loans have an adjustable interest rate that is initially set slightly below 7 percent.
Series EE bonds are sold at half the face value and earn an adjustable interest rate (recently 4.3%) that compounds semiannually.
Loans from any of these sources can come in a number of flavors, including fixed interest rate or adjustable interest rate, and with various terms, from 5 years for some adjustable-rate loans up to 40 years for some.
Under the first phase of Ohio's program, borrowers will meet certain income guidelines will be able to ditch their adjustable rate mortgages or other high interest rate loans and get into a 6.75 percent fixed rate mortgage.
Damon Daniel, an organiser, says none of the 16 who applied got a write-down, though some might have their mortgages converted from an adjustable to a fixed interest rate.
Last year alone, 40% of adjustable rate mortgages and interest-only loans were categorized as subprime.
Interest rates on adjustable-rate mortgages, for instance, use the Libor rate as a reference.
The year was 2005 and financing was easy to come by, if you were willing to get an interest-only adjustable-rate mortgage.
Could they not analyze cash flows of loans comprised of adjustable rate mortgages with interest rates that would increase by several percentage points after year one.
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There were also reports this week that the Bush administration is trying to convince mortgage lenders to provide some relief to borrowers who face rising interest rates under adjustable rate mortgages.
The credit boom was created by initially low adjustable rate mortgages, interest-only or negative amortization loans, and an appreciating real estate market that allowed homeowners to extract equity to help make mortgage payments.
It's designed for people who have a solid income, and they just got in over their heads or got into one of these crazy adjustable loans with a 10 percent interest rate that they can't afford.
Issued during a period of historically low interest rates--for adjustable-rate mortgages, they clocked in below 4% in 2003--many mortgages allowed buyers to pay only the interest on a loan for a certain period of time, or pay down very little on loan principal.
Series I bonds consist of two components: a fixed interest rate return and an adjustable inflation-linked return, making them somewhat similar to TIPS. The fixed rate never changes, but the inflation return rate is adjusted every six months and can also be negative (which of course brings your total return down).
During the mortgage crisis, the vast majority of jumbos were adjustable-rate mortgages and hybrid adjustable-rate mortgages, which started at low fixed rates and switched to adjustable interest rates at the end of a set time period typically of five, seven or 10 years, said Keith Gumbinger, vice president at HSH.com, a mortgage-information website.
Mr. GREG MC BRIDE (Financial Analyst, Bankright.com): The biggest beneficiaries of the Federal Reserves repeated interest rate cuts will be home owners that have adjustable rate mortgages due to reset in 2008.
When interest rates were higher, there was risk that an adjustable rate mortgage, offering a rate slightly lower than fixed rate mortgages, would shoot up in the future.
The Bush Administration's plan to rescue the housing market and keep the economy from slipping into recession took flak yesterday for freezing interest rate hikes for a mere fraction of subprime, adjustable-rate borrowers.
First, he's concerned that interest rates will keep going up and all the people on adjustable rate loans will be forced to sell as their payments go up.
Moroney is still buying Golden West Financial (nyse: GDW - news - people ) as well, because of the large volume of its adjustable-rate mortgage business, which partially insulates it from rising rates since interest on ARMs is by definition not fixed.
Meanwhile, a series of hikes by the Federal Reserve raised interest rates from 1 percent to 5.25 percent, pushing many adjustable rate mortgages beyond the means of borrowers, Dodd said.
Hundreds of billions of dollars in adjustable-rate mortgages that were underwritten in the first wave of the trend will get kicked up to higher interest rates in the coming year, and that promises to trip up a lot of homeowners.
Adjustable rate mortgages exploded onto the scene offering us the opportunity to prosper from correctly guessing the future movement of interest rates but requiring us to comprehend the financial gyrations of these loans.
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