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HUD adds adjustable-rate loan options

March 12, 2004

FHA to insure 3-, 5-, 7-, 10-year fixed-payment loans

The Department of Housing and Urban Development published in the Federal Register Wednesday a final rule that aims to enhance home-buying opportunities by expanding its offerings of adjustable-rate mortgage products on FHA-insured mortgages.

Potential home buyers will be able to choose mortgages with periods of three, five, seven or 10 years, depending on their needs, during which time the interest rate would be fixed.

Under the rule, which takes effect 30 days from today, the interest rate for 3-year and 5-year ARMs cannot change by more than 1 percent per year after the fixed-payment period is over, with a maximum change of 5 percent for the life of the loan. For 7-year and 10-year ARMs, the maximums are 2 percent annually and 6 percent for the life of the loan.

Currently, the only FHA-insured ARM that is available has a 1-year fixed-payment period, with caps of 1 percent a year and 5 percent for the remainder of the loan.

HUD is a federal agency that implements housing policy.



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