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How Do Simple Interest Home Loans Function?
Simple Interest home loans are available as adjustable rate mortgages (ARM's). Interest rates are fixed in terms ranging from monthly adjustable (rate changes every month) to longer terms ranging from 1 year to 10 years. (These are referred to in the mortgage business as "Intermediate ARM's".)
After the initial term where the interest rate has been fixed, the rate and payment will change. Interest rates will change (up and down) based on two variables; the "Index", and the "Margin".
The Index is a financial benchmark that is determined by the financial market forces and is not controlled by the bank or the customer. One very common index is known as "LIBOR" (London Interbank Offered Rate). Other common indices include the Prime Rate, One Year Treasuries, and others.
The "Margin" is what the bank or mortgage company adds to the Index to produce their rate.
Adding the Margin to the Index produces the "Fully Indexed" or, "True Rate". When the initial term of the loan is ended, the new interest rate is calculated using this formula. The result is the modified interest rate that establishes the new payment.
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Contact Information
Nations Home Funding
4700 Falls of Neuse Road
Suite 120
Raleigh, NC 27609
919-877-0022 Ext 204 (p)
919-877-9505 (f)
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