Shaun Donovan, secretary of Housing and Urban Development, made the announcement in a statement yesterday. Currently Fannie Mae or Freddie Mac, through President Obama’s Home Affordable program, can refinance mortgages they own or guarantee when the loan is worth as much as 105 percent of the home’s market value.

Do you have an ARM loan? Or, are you considering an ARM loan for your upcoming property purchase? The ARM loan has been discussed in greater detail in the past few years as many homeowners have faced increases in their interest rates after the fixed periods. The basic definition of an ARM loan is that the interest rate will adjust based upon indexes or time periods.

Some features of an ARM loan that you should review include:

• ARM loans offer an initial fixed interest rate period, with a rate that is often lower than the current market rate.

• When the initial interest rate period has been reached, the loan interest rate is subject to change. If the interest rate changes, the total monthly mortgage obligation will also be reset.

• Most ARM loan interest rates are tied to a specific index. Common indexes that may be associated with an ARM loan include 1, 3 and 5 year treasuries as well as the national or regional rate of savings and loan associations.

• Most ARM loans have an interest rate cap listed within the loan documentation. This is the maximum amount that the interest rate can reach in the event that it adjusts.

• Some ARM loans offer a conversion privilege option, allowing the mortgage holder to cover their loan into a fixed loan after a specific length of time. This can be a benefit if interest rates are rising.

• Some ARM loans are associated with a pre-payment penalty, applied in the event that the mortgage holder pays off the loan prior to the original term length.

ARM mortgage loans, just like all mortgage types, have advantages and disadvantages that should be taken into consideration when applying for financing. Be sure to pick the best mortgage option for your financial situation as well as your short term and long term financial goals.