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What is an Adjustable Rate Mortgage?

What is an Adjustable Rate Mortgage?

What is an adjustable rate mortgage?  An (ARM) is a home loan with variable interest rates that can change periodically after the initial fixed-rate period. After the introductory period, monthly payments will adjust and increase or decrease, depending on the market.  Check out our Blog here. Homeloan mortgagecalculator here.

For example, with a 5/1 ARM, the interest rate will remain fixed for the first five years and then will become variable for the rest of the term, adjusting once per year according to the caps.  Based on the type of ARM, the payment could change from one month to the next, or it might not change for months or even years.

The advantage of a 5/1 ARM over a fixed rate is a much lower interest rate and payment during the fixed-rate phase. When rates are falling, ARMs are beneficial because you are not locked into the high rate, and when the fixed-rate period ends, the floating rate may drop.

One advantage of Jumbo ARM is that lenders tend to keep the mortgage rather than sell them. This means the rules are more flexible for these “Portfolio” loans.  Home buying with a Jumbo ARM loan could allow you to buy more home.

While fixed-rate home loans keep the same interest rate and payment for the life of the loan, adjustable-rate mortgages, or ARMs, have fluctuating rates, your rate and payment will change.  Adjustable-rate mortgages (ARMs) come with an interest rate that changes at predetermined times, like once every 6 months or once per year. The rate can go up or down depending on several factors. Contact Par 4 Mortgage for more details or for mortgage rates today.

ARMs can have a low introductory rate, which means more affordable monthly payments in the beginning.  They are generally better for borrowers who don’t plan to stay in the home a long time, or who expect to refinance before the fixed rate period ends.  Interest rates are somewhat unpredictable. Given the recent increase in rates, ARMs save you money by securing a lower initial rate.

An FHA ARM loan is a home loan backed by the Federal Housing Administration (FHA). Its interest rate may change over time, starting with a lower fixed rate and monthly payment, then adjusting up or down based on an index and a margin. This loan is designed for low and moderate-income families who want to purchase or refinance. It has limits to how much the rate can vary at each adjustment. It may savings on the front end, but also poses more risk than a 30 year fixed mortgage.

Adjustable-rate mortgages offer:

Home Buying? Cash out Refinance?

Any questions, like how much mortgage can I afford? Get in touch. We offer a free homeloan calculator.

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