Adjustable Rate Mortgages
An Adjustable Rate Mortgage (ARM) can benefit a homeowner who is looking to stretch a monthly budget. If you want to save more money from month-to-month, an ARM may be right for you.
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What makes an Adjustable Rate Mortgage right for
me?
If you plan on living in your home for a short time period - usually 7 years or less - an Adjustable Rate Mortgage is probably a perfect fit for you. Adjustable rate mortgages stay fixed for an initial time period (anywhere from 1 - 7 years) and then convert to a rate that varies with the indexed rate, so you may save more money with an ARM if you plan to stay in your home for a few years.
How does an ARM work?
An Adjustable Rate Mortgage has an interest rate that is based on the fully indexed rate published in the Wall Street Journal. The rate of your ARM can move up and down depending on what the index rate is doing. Generally, Adjustable Rate Mortgages start with much lower interest rates than fixed-rate mortgages where the interest rate remains the same for the life of the loan.
What do the numbers 3/1, 5/1, and 5/6 mean?
The first number represents the initial term of the loan. For example, a 3/1 ARM would be fixed for 3 years. The second number shows how often the rate can change or adjust after the fixed term of the loan ends. When there's a 1 as the second number, the rate adjusts annually after the initial term. A 6 as the second number typically means the rate adjusts every 6 months after the initial term expires.
Adjustable Rate Mortgage
FAQs
If you didn't find what you were looking for here, visit our Adjustable Rate Mortgage FAQs for more information.
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