Adjustable-Rate Mortgage
Afraid of missing out on your perfect home while waiting for the right rate? Need cash for home improvements this summer or to pay down high interest debt? An adjustable-rate mortgage might be the perfect answer!
Explore this unique flexible-rate option and the summer special to go along with it.
Explore this unique flexible-rate option and the summer special to go along with it.
What is an Adjustable Rate Mortgage (ARM)?
Known as an ARM, an adjustable-rate mortgage offers a fixed interest rate for a term of your choice (usually five or seven years), then it adjusts annually based on market conditions. That’s why you’ll see them referred to as 5/1 and 7/1 ARMs. These unique loans come with equally unique benefits:- Stability of fixed-rate loans for five to seven years
- Lower initial interest rates compared to traditional fixed-rate mortgages
- Flexible option for homeowners planning to move or refinance in short term
- Interest rate caps typically in place to prevent significant increases
Benefits of Choosing an ARM
Have we caught your attention? Let’s get into some key ARM benefits.- Lower Initial Interest Rates: Enjoy a reduced rate during the first five or seven years, which can lead to significant savings on interest payments as you settle into your new home.
- Affordability: With lower monthly payments at the start, you can allocate extra funds for renovations or debt repayment, making it a great choice for first-time buyers and budget-conscious individuals.
- Flexibility: Ideal for those planning to move or refinance in the next five years. An ARM offers lower rates without the burden of a long-term commitment, allowing you to adapt to life changes more easily.
Understanding ARM Interest Rates
Let's talk interest rates. A big perk of an ARM is the lower interest rate to start, typically less than a traditional fixed-term mortgage rate. Depending on whether it’s a 5/1 or 7/1 ARM, after those initial five to seven years, the rate adjusts annually based on a market index (like the SOFR or the Constant Maturity Treasury). Understand what’s within your control and what isn’t.Can Control
- Personal credit score
- Debt-to-income ratio (how much you owe vs. how much you make)
Can’t Control
- Shifts in Federal Reserve policy
- Bond market changes
- Housing demand
Tap into your trusted experts (hey, that’s us!) for clear info to help you make informed choices.
Who’s an ARM Right for?
Like any other mortgage, you’ll need a stable income, a solid credit score, and a reasonable debt-to-income ratio to start. Work with a lender you trust to understand how much you can afford and suggest mortgage types that might be right for you. Now, let’s talk about situations that may lend themselves to an ARM!- Short-Term Stay: If you’re in a situation where you know your time is limited in a particular location, such as a military station, temporary job placement, or higher education.
- Cash-Out Refinance: Looking to cash in on some equity from your home? Consider an ARM as a lower-rate option when looking at other home equity offerings.
- Equity Builder: Especially for those looking at a starter home, an ARM could help build equity at a lower rate and payment, as you hunt for your forever home a few years down the road.
Weighing ARM Pros & Cons
Like any major life decision, it’s best to weigh the pros and cons before jumping in.Pros
- Initial fixed interest rate can save you serious cash
- Ideal for those anticipating refinance or move before adjustable period
Cons
- After fixed term, rate adjusts annually
- Possibly leading to future higher payments
Ready to Apply or Want to Chat?
If we’ve already answered all your questions and you’re ready to apply, get started online now, and we’ll be in touch!Want to connect with one of our Mortgage Lenders to talk through your situation? Reach out to any of them here!
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