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At the time of origination, the expected yield on an adjustable rate mortgage (ARM) should be...

At the time of origination, the expected yield on an adjustable rate mortgage (ARM) should be less than that of a Fixed Rate Mortgage. Discuss.

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Expert Solution

Fixed-rate mortgages and adjustable-rate mortgages are the two types of primary mortgage. So it is very important to select which mortgage we should select and which is appropriate for us. In fixed rate mortgages the interest rate is already set and will not change time to time. The initial interest rate at the time of origination on an adjustable-rate mortgage is set below the market rate on a comparable fixed-rate loan. After that only gradually the rate will began to rise. These type of mortgages are little but complicated than the fixed rate mortgage. Here we can identify that the rate of ARM is less than the fixed rate mortgage because in fixed rate mortgage the rate is not fluctuating so that the rate will be higher from the initial period. But in ARM the rate will be low in initial period and after that the rate will gradually increase. This is how these two mortgages are working.

ThankYou....

jeff jeffy answered 1 year ago
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