Part 1 | Part 2
As mentioned earlier, the advantages that an FHA ARM holds are twofold. In the first place the FHA ARMs have all of the same benefits that a fixed FHA mortgage has:
- 96.5% Loan to Value (LTV) on purchase transactions
- 97.75% LTV on rate and term refince transactions
- 85% LTV on cash-out refinances
- Less expensive Mortgage Insurance
- 6% Seller Concession allowed
- Expanded Credit criteria
- Assumable
- Streamline Refi available
What are the Terms of an FHA ARM Loan?
In addition to these benefits, the FHA ARM Mortgage has very attractive terms as well. The FHA ARM uses the 1 year TBill (CMT) as its index. The CMT has historically been a fairly steady index not prone to wild swings in rate. More importantly, the Margin for FHA ARMs is set at 2% which is lower than other more traditional (Agency) ARMs. Typically the Agency ARMs have margins ranging between 2.25% and 2.75%. Remember, when the fixed period for an ARM ends, the Index is added to the Margin to establish the new rate. So the lower the Margin (which never changes) is the lower your chances are for big jumps in rate in any given adjustment period. To further protect the FHA ARM borrower from big moves in any given adjustment period, the Caps for an FHA ARM are very favorable. In comparison to Agency ARMs which typically have Caps of 2/2/6 for CMT ARMs or 5/2/5 for LIBOR ARMs, the FHA ARMs Caps of 1/1/5 are real game changers. The fact that the rate can change no more than 1% in any given adjustment period is a real advantage over other types of ARM products, particularly the LIBOR ARMs that can change as much as 5% in the first year of adjustment!
Who is the FHA ARM Mortgage For?
As I have said in previous blogs about Adjustable Rate Mortgages, the ARM product is not always the best choice for every mortgage customer but then again neither is the ubiquitous 30y Fixed either. If you are on a career path that requires relocating often or are nearing retirement age and know you will be moving to sunnier climes, or are simply looking for the lowest possible rate in the near term; the ARM is something to seriously consider. The FHA ARM with all the advantages it holds in terms of qualifying and in very reasonable Cap, Margin and Index terms should be something that works its way into every mortgage decision maker’s view. Please contact one of our mortgage professionals today to discuss great FHA ARM rates as well as industry leading rates on the entire spectrum of available mortgage products.
If you have any question that you would like to get answered by our expert mortgage brokers, please email us or call us at 1-877-868-2503. See our lowest FHA ARM Mortgage Rates.
