UnThreaded | Threaded | Whole Thread (5) | Ignore Thread Prev | Next
Author: crackdclaw Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 127807  
Subject: Amortization: 30YR vs ARM Date: 2/6/2014 1:02 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 0
I guess I could Google this and dig deeper into the numbers, but perhaps someone on the boards will chime in with an answer in plain english. I did ask 3 or 4 work colleagues, and no one had even given this any thought.

Why does an ARM loan product initially amortize quicker than a 30YR fixed? Both loan products have a term of 30YRs and the amortization schedule will allow both loans to be paid to $0 after 30YRs. Yet the ARM loan will have it's balance reduce quicker than a 30YR fixed.

In month one, more money goes toward principal vs interest with an ARM vs a Fixed rate, when both have 30 year terms. This continues in the early years of the mortgage. If you were to compare a 7YR ARM vs. a 30YR fixed, at the end of the ARM's fixed rate, (7 years or 84 months) the loan balance on the ARM is significanlty lower than the loan balance on a 30YR Fixed. Yet both loan products have 30YR amortization schedules?
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (5) | Ignore Thread Prev | Next

Announcements

Useful Resources
Our Home Center has all you need to make buying and owning a home a great experience. Get or refinance a mortgage and much more!
Buying/Selling a Home FAQ

Mortgage Professor
Offsite resource for mortgage questions.
Foolanthropy 2014!
By working with young, first-time moms, Nurse-Family Partnership is able to truly change lives – for generations to come.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Post of the Day:
Macro Economics

Economic Implications of Cuba
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement