Pitfalls of Discretionary Arm Mortgages

The discretionary adjustable rate mortgage (ARM) is a type of mortgage loan that lender can change the interest rate of the loan; as long as, the borrower is notified in advance of the change. The discretionary ARM is a type of mortgage loan is not available in the United States.  It is mortgage loan option widely available in Europe. The discretionary (ARM) never caught on in the United States, because it is advantageous to the lender, and it provides little protection for the borrower.

The pitfalls of a discretionary ARM are no cap or limit to how high a lender can increase the interest rate,  lacks rules to regulate the increase that could be imposed by lenders, and the interest rate can be raised for any reason that means a lender’s greed can fuel interest rate increases. Ultimately, the discretionary ARM does not protect the borrower.

Since there is no limit to how often or how high the increase of the interest can be or occur, unscrupulous lenders can prey on borrowers.  There is little legislation that regulates how the discretionary ARM is executed; therefore, it is almost impossible to believe there is anyway to keep a lender’s greed out of the decision to raise interest rates of the loan.  The only requirement for the lender to follow is provide advance notification to the borrower of any increase that will occur during the term of the loan.

The borrower is at a disadvantage when using the discretionary ARM.  You can pay for the greed of the lender, and there is no recourse for lender’s actions. When the lender provides advance notice, it is the only requirement that needs to be met to increase interest rate.  Borrower can only complain that their mortgage is too expensive. When you do not have controls to ensure the discretionary ARM is advantageous to parties, greed and misuse will run rampant.

There are too many pitfalls that are associated with the discretionary ARM for it to be considered an option by a borrower or ever be utilized as primary mortgage loan option in the United States.  It is not regulated; therefore, the lender will always be able to impose ridiculous hikes to the loan’s interest rates.  The use of the loan type makes the borrower and easy target for lenders who do not consider welfare or financial state of the borrower.  Pitfalls of discretionary ARM makes this type of loan very unattractive to the borrower.