Adjustable Rate Mortgages

An adjustable-rate mortgage (ARM) is one that the interest rate changes over the life of the loan - according to the terms specified in advance. The interest rate fluctuates based on several money market indexes, which cause the cost of funds for lenders to vary. All ARMs are amortized (paid down) over 30 years. With ARMs:

 

The initial interest rate is usually lower than with a fixed-rate mortgage.

 

The monthly repayment would also be lower.

 

The interest rate may be adjusted (up or down) at predetermined times.

 

The monthly payments will then increase or decrease.

ARMs are usually priced lower than fixed-rate mortgages so you can increase your buying power and lower your initial monthly payments. If interest rates go down, you'll enjoy lower payments. Usually an ARM is the best choice for homeowners who plan to relocate (for example, with their company or the military), or for those who are purchasing their first home and plan to be in the property only for three to five years. Remember that, on average, most people move or refinance within seven years. Conversely, monthly payments could increase if monthly payments if interest rates go up. Keep in mind that ARMs are best for homeowners who aren't planning on staying with a property for a long period. If you're on a fixed income, an ARM (especially a short-term ARM) may not be your best choice.

 

10/1 Adjustable-Rate Mortgages provide a fixed initial rate of the loan for the first ten years of repayment. After 10 years, the rate adjusts every year thereafter for the remaining life of the loan. The loan is amortized over 30 years.

 

7/1 Adjustable-Rate Mortgages offer an initial rate that is fixed for the first seven years of repayment, then the rate adjusts every year thereafter for the remaining life of the loan.

 

5/1 Adjustable-Rate Mortgages mean the initial rate remains fixed for the first five years of repayment, and then adjusts every year thereafter.

 

3/1 Adjustable-Rate Mortgages provide three years at the initial fixed-rate, then the rate adjusts every year for the remaining life of the loan. A good choice if you expect to move or refinance in a relatively short period of time. But a much shorter fixed-rate period means your interest rate (and therefore monthly payments) may begin to fluctuate after three years.

To learn more, contact one of our knowledgeable ASSOCIATES or email us at BUYINGINFO@SBAREALTY.US We look forward to partner up in servicing your real estate needs.

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