Adjustable Rate Mortgage
An Adjustable Rate Mortgage (ARM) isn’t for everyone, but for some, it’s perfect and meets a specific need. Starter-home? Relocate often for work? Another reason for buying a home that won’t be your “forever home”? If so, an ARM may be the right mortgage for you. Speak with a Union Square Mortgage professional to learn more.
Overview
Adjustable Rate Mortgage (ARM) loans are mortgages in which the initial rate adjusts—and continues to adjust periodically—after the loan’s fixed period, either going up or down depending upon market conditions over the remaining life of the loan. ARMs offer a fixed period of either one, three, five, or ten years. Adjustments are commonly made on a yearly basis, although some ARMs adjust every six months after the fixed period. Most ARMs have rate caps which limit how much a rate can increase or decrease, but borrowers should realize that unlike a fixed-rate loan that remains static over the course of the loan and by extension so does the mortgage payment, an ARM’s rate will only be “fixed” for a portion of the loan. At the end of the fixed period and every time the loan adjusts, the rate (and mortgage payment) will change.
Individuals may refinance an ARM at any time without penalty.
Additional Details
Down Payment: Typically, 5% is the minimum, required down payment. Some conventional loans may allow a down payment as low as 3%. However, a down payment of 20% or more is required to avoid private mortgage insurance (PMI).
Loan Terms: Various terms are available. ARM loans are long-term loans comprised of two phases: the fixed period and the adjustable period.
Credit Requirements: Typically, 620 or better. However, FHA ARMs may provide an option for those with lower scores. Borrowers are qualified based on the maximum adjustment in the first, five years.
Fixed Period: One-year, three-year, five-year, seven-year, or ten-year terms are common. It is within this period that the loan’s rate will not fluctuate; it will be “fixed.” Typically, the shorter the fixed period, the better—or lower—the ARM’s rate is within its fixed period.
Adjustable Period: This period follows the fixed period. It varies based upon the original term of the loan; however, often the adjustable period is anytime from 10 to 20 years. It is within this period that the loan’s rate will adjust annually or, in some situations, every six months.
Speak with a Union Square Mortgage professional to learn if an Adjustable Rate Mortgage is the right mortgage product for you!