ARM Class Action: Interest Rate Abuse?
Last Updated on May 1, 2020
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At A Glance
- This Alert Affects
- Consumers who obtained an adjustable rate mortgage (ARM).
- Damages
- Borrowers may have legal recourse to seek financial compensation if the interest rates charged in association with their ARMs exceeded the rate that should have been applied under the terms of the loan.
- Company(ies)
- Mortgage banks
- Additional Details
- An adjustable rate mortgage (ARM) is a loan with an interest rate which is linked to an economic index. Based on changes in the index, the interest rate and the borrower's payments, are adjusted up or down.
ARM Class Action Lawsuit
Consumers who have obtained adjustable rate mortgage (ARMs) may have legal recourse to seek compensation for the interest rate charged under their loans. A recent adjustable rate mortgage lawsuit alleges that certain financial institutions have been abusing the interest rates they charge in association with their adjustable rate mortgages. Although the interest rates for adjustable rate mortgages are periodically adjusted up or down as the economic index changes, banks have allegedly been charging borrowers higher interest rates than what should actually have been applied under the terms of the loan.
Adjustable Rate Mortgage Laws: Interest Rates
An adjustable rate mortgage is a type of loan with an interest rate that is linked to an economic index. Interest rates, as well as the borrower's payments, are adjusted up and down based on changes in the index. When a borrower enters into an ARM loan, they are informed that their "Initial Interest Rate" - the rate that is charged before any adjustments during subsequent time periods - would be the sum of a specified "Index" and a set "Margin." The index acts as a guide that banks use to measure interest rate changes, while the margin represents the "lender's markup" and typically stays the same during the span of the home loan.
The disclosures and documents provided with the loan imply or state that the rate applicable to the ARM will not exceed the Index plus the Margin. Still, banks have allegedly been charging borrowers an Initial Interest Rate and subsequent interest rates that exceed the sum of the Index and Margin.
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