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Adjustable Rate Mortgages
(ARMS) |
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An Adjustable Rate Mortgage, or an ARM, gives the
borrower the ability to get a mortgage, typically at a lower interest
rate, for a specified period of time. Although the loan is amortized
over 30 years, the interest rate will adjust after the fixed period
disclosed in your ARM.
At this point you can either refinance at a lower
interest rate, if available, or make the adjusted payments based
on current interest rates and the terms of your ARM.
There are many ARM programs available today. A 6
month ARM, for example, means that the term of the loan, which is
30 years, will have an adjusting interest rate every six months.
With a 7/1 ARM, the loan has a fixed interest rate
for the first seven years at which point the interest rate adjusts
annually for the reminder of the loan's term, or the next 23 years.
As with every ARM program the borrower may choose to refinance at
a lower
interest rate if it makes sense to do so.
ARMS are ideal for borrowers who are planning on
staying in their home for a short period of time. The lower initial
interest rate of an ARM creates a potential savings for short-term
owners who may then refinance at their discretion.
To improve your financial situation, discuss all your options with
your loan officer.
6 Month, 1 Year, 3/1, 5/1, 7/1, and 10/1
ARMS
ARMS are fixed rate mortgages for a specified period of time: 6
month, 1 Year, 3, 5, 7 and 10 years respectively. Typically the
borrower pays a lower interest rate, which will then adjust for
the remaining term of the loan as disclosed in the ARM. The borrower
will then have the option of refinancing or continuing to pay the
adjusted interest rate.
Loan Type: Adjustable Rate Mortgage (ARM)
Definition: The interest rate changes over time as described by
your ARM disclosure on a basis set by a clause in your ARM.
Benefits: You will have a
lower interest rate in the beginning of your mortgage repayment
process, however your interest rate will change over time.
Drawbacks: Payments may increase
and this can be difficult if rates increase.
Note: This is a good option if you know your income will increase,
rates are expected to drop, or you are expecting to have the home
for only 5 years or so.
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