An adjustable rate mortgage (ARM) can offer a homeowner a way to save money on their loan in the short term, with a variety of payment options in the future. ARMs offer a great deal of flexibility to borrowers. An ARM loan has an initial fixed rate for a period of time, then the rate becomes adjustable. Most rates themselves will be tied to indexes like the London Interbank Offered Rate (LIBOR).
The decision to go with a variable rate mortgage or one with a fixed interest rate will depend upon your personal situation.
Adjustable Rate Loans are especially attractive to…
- Borrowers who are looking for a lower initial payment.
- Borrowers who don’t plan to be in their homes for a long period of time.
- Borrowers looking for flexibility to tailor the fixed and adjustable portion of the loan to their situation.
Initial fixed interest rate
Adjustable Rate Mortgage (ARM) rates are initially fixed for a period of time that you choose.
Lower initial payments
The initial payments during the fixed portion of the loan are usually lower than a comparable fixed rate loan.
If you aren't planning to stay in your home for a long time, the variety of adjustment periods offers flexibility and potentially lower costs to borrowers.
Caps on the increases
An adjustable ARM has a cap on the amount that the interest can rise in any adjustment period.
You can invest the savings
The money saved on the initial payments can be invested for other purposes.
Take advantage of falling rates without refinancing
In periods of falling interest rates, borrowers can take advantage without having to refinance their mortgage.
Adjustable Rate Mortgage
Get an idea of what your monthly mortgage payment may be, including costs associated with your mortgage such as property taxes, homeowners insurance, and Private Mortgage Insurance (PMI), if applicable.
Recalculate your new house payment based on loan amounts, interest rates, and other factors, to see if refinancing your mortgage is a smart financial move.
Calculate how much house you can afford. Get an estimate for a mortgage amount that may fit comfortably within your budget.
Frequently Asked Questions
There are a number of options for the fixed portion and the variable portion of the loan. Our loan specialists are standing by ready to get you set up with the adjustment term that best fits your needs and qualifications.
Generally, the payments for the initial fixed period of the loan may be lower than those of a comparable fixed term loan. This may help some borrowers better afford a home initially. ARMs can also be a good option for borrowers who aren’t planning to stay in their home for a long time.
Limits are in place to cap how much the interest rate or payment may increase for each adjustment period. Additionally, adjustable rate mortgages have a lifetime cap on the amount that the interest rate can increase. These features may offer you a look at the maximum increases you can expect.
As with any mortgage, you may refinance if qualified after a certain time, you will be subject to our normal mortgage underwriting process. This can be a good option if your situation changes — for example, if you decide that you will be staying in the home for a longer period of time than initially anticipated.
The underlying benchmark tied to rate adjustments on your loan is publicly available, and you can follow the rates. Treasury securities such as the one-year Treasury bill or the one-year Libor (London Inter-bank Offered Rate) are common ARM benchmarks with rates that are readily available.
The structure and terms of adjustable rate mortgages will vary from program to program. It’s important that you discuss your situation with our loan experts in order to identify the best course of action. Be sure to ask questions about how the loan could adjust.
You have questions, we have answers.
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Why Finance of America Mortgage?
We’re not about pushing loan papers. We’re about moving your dream forward. And we do that through knowledgeable local advisors, a personal approach, and a variety of smart loan options.