Adjustable Rate Mortgages

The interest rate on an adjustable-rate mortgage (ARM) changes at a specified time after an initial “fixed” period.  For example, a 5/1 ARM is fixed for five years and then adjusts in year six. We offer a wide variety of ARMs to fit your unique needs, including 3/1, 5/1, 7/1 and 10/1 ARMs.

 

Why consider an ARM?

 

While most mortgages today are fixed rate mortgages, there are situations in which an ARM would make sense.  Depending on financial markets, an ARM may offer you a lower rate.  ARMs, not always, but generally have the lowest possible mortgage rate. In fact, ARM rates, such as that of a 5/1 ARM, can at times be approximately 1% lower than that of a 30-year fixed-rate mortgage. The 5/1 ARM rate would be fixed for five years, potentially saving you thousands in interest expense that you could use, for example, to pay off credit card debt, or add to your retirement savings.  If you plan to sell your home before the loan adjusts you may save money versus a fixed-rate loan. For example, if a job transfer is likely, an ARM would be a better solution than a higher rate 30-year fixed-rate mortgage. The lower initial rate of an ARM can be a good strategy for mobile professionals, homeowners who plan to upsize or downsize, and anyone who will live in their home for the short term.  That being said, setting up a meeting with one of our mortgage loan consultants can clarify some of the benefits as well as downsides to an adjustable mortgage.

Things to keep in mind…

Monthly principal and interest payments may increase when the interest rate adjusts.  This is due to the fact that adjustable rate mortgages are based on index market rates (which can go down but just as easily go up).  Your monthly principal and interest payments may change every year after the initial fixed period is over.  Lastly, keep in mind that most adjustable rate loans will adjust up after the initial locked term (this is called the initial adjustment amount).