With an Adjustable-Rate Mortgage, the interest rate stays constant for a specified loan period and then becomes adjustable based on market conditions for the remainder of the loan term. An ARM typically has a lower interest rate than Fixed-Rate Mortgages for the initial fixed-rate period.
However, when it comes to ARMs there is a basic rule to remember…the longer you ask the lender to charge you a specific rate, the more expensive the loan.
- Interest rates are fixed for a period of 3, 5, 7 or 10 years. ARMs carry risk as after the fixed-rate period ends, your interest rate and monthly mortgage payments may increase significantly depending on the market. Conversely, they can also decrease depending on the index it is associated with (LIBOR, etc.)
- Rate changes are capped at 5% above your initial fixed rate and 2% or 5% per adjustment period. For example, if your original interest rate is 2.99%, your rate will never be higher than 7.99%, and will never rise more than 2% per year – after the fixed-rate period. If you are considering an ARM, find out what the caps would be and then run the numbers to see if you can still comfortably afford the monthly payments allowable under the rate caps.
- Your actual payment will vary based on your situation and the current interest rates when you apply.
- You can pay your mortgage at any time without prepayment penalties.
- FHA and VA ARMs are also available for those that want the flexible guidelines of an FHA or VA loan
ARM Qualification Requirements:
- Refinance up to 95% of your primary home’s value
- Buy a primary home with as little as 10% down
When Would An ARM Make Sense?
ARMs are most appropriate for buyers who do not plan to own their home for longer than the initial fixed-rate period, or plan to refinance when the fixed period ends.
To learn more about our Adjustable Rate programs, please contact one of our mortgage experts.