Adjustable Rate Mortgages

Adjustable Rate Mortgages

What Is an Adjustable-Rate Mortgage (ARM)?

An adjustable-rate mortgage (ARM) is a type of mortgage in which the interest rate applied on the outstanding balance varies throughout the life of the loan. With an adjustable-rate mortgage, the initial interest rate is fixed for a period of time. After this initial period of time, the interest rate resets periodically, at yearly or even monthly intervals.

Indexes vs. Margins

At the close of the fixed-rate period, ARM interest rates increase or decrease based on an index plus a set margin. In most cases, mortgages are tied to one of three indexes: the maturity yield on one-year Treasury bills, the 11th District cost of funds index, or the London Interbank Offered Rate.

Special Considerations

An ARM can be a smart financial choice for home buyers that are planning to pay off the loan in full within a specific amount of time or those who will not be financially hurt when the rate adjusts. In many cases, ARMs come with rate caps that limit how high the rate can be and/or how drastically the payments can change.

Adjustable Rate Mortgages: After the initial period your interest rate can change once every 6 month.

• 3/6 ARM
      Fixed Rate for 3 Years, Adjustable Rate for the remaining 27 years
• 5/6 ARM
     Fixed Rate for 5 Years, Adjustable Rate for the remaining 25 years
• 7/6 ARM
    Fixed Rate for 7 Years, Adjustable Rate for the remaining 23 years
• 10/6 ARM                                                                                                                                  Fixed Rate for 10 Years, Adjustable Rate for the remaining 20 years