What is an adjustable rate mortgage?
An adjustable rate mortgage (ARM) offers a fixed rate for an initial period of time. After that initial period ends, the rate will reset, adjusting up or down to reflect market conditions for the remaining duration of the loan.
You’ve got a lot of choices when it comes to customizing an ARM for your needs. For example, a 5/1 hybrid ARM has a 5-year fixed interest rate period, after which the rate adjusts every year. 1/1, 3/1, 7/1, and 10/1 options are also common.
How is the adjusted interest rate determined?
After the initial fixed period ends, your new ARM interest rate is calculated by adding a margin to an existing index.
Of course, lenders usually cap changes in interest rates. Where depends on the terms you agreed on, but a common rate cap structure for a 5/1 ARM is 2/2/6. This means that for both the initial adjustment and each year after, your rate can rise by up to 2%, but over the life of the loan, the maximum increase is 6% total. 5/2/6 is another common cap structure, and others may be available.
Is an ARM right for me?
ARMs are definitely not for everyone, but thanks to low ARM Mortgage Rates they can be great for people in certain situations. Consider one if you are
- Planning on moving in the near future?
- Going to start or expand your family?
- Buying a starter home or condo?
- Looking for the lowest possible monthly payment?
Why Total Mortgage?
After 17 years of success, it’s safe to say that we know what we’re doing. Plus:
- Our mortgage experts will educate you as you move through the mortgage process.
- No pre-payment penalties—pay off your loan as quickly as you want.
- We close new purchase loans in thirty days or less, guaranteed.*
Ready to learn more? Call 203-349-9772 or request a consultation today!*terms and conditions apply