An Adjustable Rate Mortgage or ARM is a loan type that comes with an interest rate that can vary or change over time. Typically these products have a short fixed rate period ranging anywhere from 3-10 years and then enter a variable period for the remainder of the loan. Once the interest rate becomes variable, it is determined by one of the major financial indices of the market. Since the initial interest rates on ARMs are usually much lower than that of Fixed Rate loans, many borrowers choose the ARM product to have a lower monthly payment up front and save money on interest.
- Save On Interest – Since your monthly payment will be lower in the initial fixed period, you save money on interest payments and that means more money in the bank.
- No Prepayment Penalties – Initial fixed rate periods come and go, but that doesn’t mean you can’t refinance into a new ARM and continue to keep your payments low.
- ARMs Have Caps – Just because the interest rate is adjustable doesn’t mean it can go through the roof; ARMs have caps which prevent the interest rate from going beyond a certain point. So no matter what, you can expect to pay with this loan type. Adjustable Rate Mortgages can be very useful if you:
- Wish to have a lower interest rate and payment than that of a traditional Fixed Rate loan.
- If you plan to move in the next 3-7 years.
- If you’re expecting your income to increase over the next few years.
- If you plan to refinance your loan prior to the end of the initial fixed rate period.
In order to obtain an Adjustable Rate Mortgage, you will either be looking to purchase a home in the near future or refinance a home that you currently own. If you are looking to make a new home purchase, the first step of this process is to get pre-approved. If you are looking to refinance your home, the requirements will differ slightly from a purchase. Speaking to one of our licensed loan officers will give you the education you need to make an informed decision so you can get your current mortgage refinanced.