What is an adjustable rate mortgage (A.R.M.)?
An ARM has an interest rate, which changes periodically based on a market index and margin. The loan payment will vary accordingly based on the rate change schedule. With a fixed rate mortgage, the rate will stay the same over the entire loan term. Each ARM loan program will have an associated disclosure you may ask for to determine the applicable terms of the ARM. An ARM loan may offer a lower initial interest rate with a lower initial monthly payment, which could help you qualify for a larger loan amount. However, the interest rate is subject to change in the future and your monthly payment could increase at each adjustment period. The lender may look at the possible rate changes when determining your affordability of the loan. Adjustment Period: The ARM will have an initial period before the first rate change and will then adjust periodically on a set schedule thereafter for the loan term. EXAMPLE: 5/1 ARM – the initial period before the first rate change will be 5 years and will th
An Adjustable Rate Mortgage has an interest rate that can change periodically. The amount of the first change is based on an index. Subsequent changes depend on economic conditions and may create payment increases or decreases during the life of the loan. The ARM note stipulates how often your interest rate and payment will change, as well as the index to be used. The changed rate will be used to calculate your principal and interest payment within the boundaries of any payment rate caps that will apply to your loan. An ARM usually offers a lower initial interest rate than a fixed-rate loan. You may be able to qualify for a larger loan amount with an ARM because the credit decision can be based on current income and the first year’s monthly payments, which will most likely be lower. One disadvantage to an ARM is that an increase in interest rates may cause your monthly principal and interest payments to be higher.
A type of mortgage instrument in which the interest rate adjusts periodically according to a predetermined index and margin. The adjustment results in the mortgage payment either increasing or decreasing. A 1-year ARM, for example, will have an initial interest rate for 1 year and then adjust on the second year, and continue to adjust annually over the life of the loan. With an ARM loan, you typically get a lower starting rate in exchange for taking a risk that rates may rise in the future. There is also a cap on how much the interest rate can go up or down. For answers to specific questions or concerns, contact us at 1-800-403-3595.
An Adjustable Rate Mortgage is a type of mortgage instrument in which the interest rate adjusts periodically according to a predetermined index and margin. The adjustment results in the mortgage payment either increasing or decreasing. A one-year ARM, for example, will have an initial interest rate for one year, and then adjust on the second year. It will continue to adjust annually over the life of the loan. With an ARM loan, you typically get a lower starting rate in exchange for taking a risk that rates may rise in the future. There is also a cap on how much the interest rate can go up or down.
An Adjustable Rate Mortgage (ARM), has an interest rate which changes periodically, usually in relation to an index, and payments which may go up or down accordingly With a fixed-rate mortgage, the interest rate stays the same during the life of the loan. ARMs offer lower initial interest rates, which will help you qualify for a larger loan amount and also offers lower monthly payments. However, the interest rate is subject to change in the future, and your payment could increase at each adjustment period. The Basic Features: The Adjustment Period: With most ARMs, the adjustment period occurs every one, three or five years, resulting in a change in your interest rate and montly payment. The Index: Most lenders tie ARM interest rates to changes in an index rate. These indexes usually go up and down with the general movement of interest rates, making your monthly payment amount rise or fall accordingly.
