Most ARMs have two periods. During the first period, your interest rate is fixed and won't change. During the second period, your rate goes up and down based on market changes. Most ARMs have a 30-year loan term.
To calculate your new interest rate when it's time for it to adjust, lenders use two numbers: the index and the margin.
Index + Margin = Your Interest Rate
The index is a benchmark interest rate which reflects market conditions. The lender decides which index your loan will be tied to when you apply for the loan.
The margin is the number of percentage points added to the index by the lender to set your interest rate on the ARM after the intial rate period ends. The margin is set in you loan agreement and won't change after closing.
The fully indexed rate is equal to the margin plus the index.
If you answered “Yes” to any of these questions, an ARM might be right for you! With our Adjustable Rate Mortgage, you’ll get the lowest rates we offer, saving you thousands over a traditional Fixed Rate Mortgage, during the initial fixed rate period.
If you anticipate a significant increase in your income or property value in the next several years, plan on staying in your home short-term, or would like to significantly lower your payment, an ARM might be right for you. As the name implies, Adjustable Rate Mortgages (ARMs) have interest rates that change at a pre-determined frequency. Federally insured FHA ARMs are also available!
Why get an adjustable rate mortgage?
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Save thousands in payments vs. a fixed rate loan during the initial period
•Use the savings to pay down other debt or for whatever you like!
•Great option if you intend to refinance or sell your home in an expected time frame
Hybrid ARMs
'Hybrid ARMs' are very popular, featuring an initial fixed-rate portion, which then changes to an adjustable rate for the remainder of the loan. They are typically represented as a 3/1, 5/1, 7/1, or 10/1. The first number indicates the time (in years) that the initial rate is fixed. The second number indicates how often the rate can adjust after the initial change.
What happens after the fixed-rate period ends? Once your loan enters its adjustable-rate period, interest rate caps are put in place. They identify the maximum amount your rate can increase, both at the end of each adjustment period, and over the life of the loan as a whole. Contact one of our licensed Loan Officers today for details, and find the right loan for you!