Interested in the advantages of an adjustable rate mortgage?
Variable or adjustable-rate mortgages (ARM) are loans in which the interest rate — and accordingly, the monthly payment — fluctuates over the term of the loan. With this type of mortgage, the initial interest rate is fixed for a period of time, normally between two and five years. After the fixed-rate period, your interest rate can adjust up or down depending on current market conditions. The rate is adjusted periodically, usually every year, according to a specific index. The index for your particular loan is established at the time of application.
The most common ARM is a 5/1, which means the rate is fixed for 5 years and then can adjust every year thereafter for the remaining 25 years. An interest-only option can be added to an adjustable rate mortgage for a reduced payment.
Why choose an ARM over a fixed-rate mortgage? For one, interest rates are typically lower than fixed-rate mortgages, which means you’ll enjoy a lower monthly payment during the fixed period. Also, rate adjustments are capped at 5% above your initial rate, and 2% or 5% per adjustment period. So there is a limit on how high the interest rate on your loan can go.
If you think an ARM might be a good fit for you, contact us. We can help you with expert advice and options that best suit your needs.