ADJUSTABLE RATE MORTGAGE LOANS
ARM yourself with flexibility
How an Adjustable-Rate Mortgage Works
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Don’t settle for a fixed rate.
Adjust to the best rate with an ARM.
Adjustable rate mortgages, or ARM, is a type of loan that offers a fixed interest rate for an initial period, typically one to five years. After the introductory period, the interest rate can change (often at the discretion of the lender) based on specific indexes. These type of mortgages can be appealing for several reasons, including lower starting interest rates and greater flexibility.
Generally, ARM interest rates are lower than those of a fixed-rate mortgage. Because the initial interest rate is lower and the monthly payments are generally lower, borrowers have a better chance of qualifying and may have increased purchasing power. ARM loans also have the benefit of greater flexibility. During the introductory period, borrowers can pay extra or skip a payment. ARM loans also allow borrowers to refinance if the interest rate increases. However, these benefits typically come with greater risk. For example, when the interest rate resets, the monthly payments may increase significantly.
Adjustable rate mortgages rate cap
To protect consumers, all adjustable rate mortgages have an initial rate cap, or the maximum interest rate the lender can charge during the introductory period. The loan should also have an adjustable rate cap. This is the maximum amount the interest rate can increase when it is reset each year. Most ARM loans also have a life-time cap, the highest rate the interest rate can increase to over the life of the loan.
For the majority of borrowers considering an adjustable rate mortgage, the benefits are likely to outweigh the risk. And while they typically have a lower initial interest rate, the interest rate can reset higher, which can cause monthly payments to increase. Calculating the long-term cost of an adjustable rate mortgage, and understanding any potential risks, is always advised before signing any paperwork.
ARMs are a great product to for borrowers who don’t plan to stay in a home long-term too. Lower FICO scores are usually acceptable. North Carolina, South Carolina and Florida states.
