Is the FHA LIBOR ARM For You?

by Peter G. Miller
July 25th, 2007

The FHA mortgage program will change as of August 20th. Lenders will be allowed to offer 3-, 5-, 7- and 10-year FHA ARM products that use the LIBOR index instead of the one-year Constant Maturity Treasury (CMT) index.

If you have an interest in an FHA ARM be sure to look at both the index and the margin. The LIBOR index typically has a 2.25 to 2.50 margin while an ARM with a Treasury index might have a 2.75 percent margin.

While indexes move up and down, you at least want to compare the LIBOR and Treasury measures. If the LIBOR margin is within .25 to .50 of the Treasury index, then either index might be attractive. But if the margin gap is more than .25 to .50, then you might favor the Treasury index, if the margin is less than .25 to .50 then the LIBOR might be a better choice.

The view here is that a lower margin is best because the margin is fixed for the life of the loan. That said, who knows how indexes will move in the future?

For specifics, speak with lenders for details.

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One Response to “Is the FHA LIBOR ARM For You?”

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