Adjustable Rate Mortgage (ARM) Loans

If you’re not buying your “forever home,” you could take advantage of lower rates for the shorter term.

Not everyone plans to be in their home for 30 years or more, in fact the average homeowner only stays in their home for eight years according to a recent article published by Susan Meyer. An Adjustable Rate Mortgage (ARM) loan is most commonly used by homebuyers who don’t plan on staying in the home for the long haul and want a potentially lower rate during the first few years of the loan. An ARM refinance can also be a tool for existing homeowners looking to move up in the next few years. There are many reasons an ARM loan may be the right fit for you, but it’s important you fully understand how they work. Summit is here to help you understand all your options so you can make an informed decision.

Recent years have caused a lot of adjustments in rates themselves but also in the types of loans that carry the lowest rate so it’s important to explore the best options available to you with a loan officer near you.

Getting to Know the ARM Loan

Fixed-Rate For Initial Term

ARM loans come with a fixed rate for a set amount of time (typically between 3 and 10 years),  then move to an adjustable rate after that time is up. For example, a 5 year ARM will have a fixed rate for the first 5 years and then moves to an adjustable rate which can adjust once every year based on current market rates.

Lower Initial Monthly Payment

Initial ARM interest rates can be lower than those found on fixed-rate mortgage loans which can result in a lower initial payment. This may help qualified buyers purchase more home with an affordable payment.

Just To Be Clear…

An ARM loan can be a great tool for the right buyer but certainly isn’t a fit for everyone. There are parameters that restrict the rates during the adjustable period so there are still some protective measures in place for the homeowner but it is imperative to understand that this rate option does come with an elevated risk after the initial fixed rate period; the rate and payment very well could increase and there is no guarantee your financial situation has followed the same inflation path.

Adjustable-Rate Mortgage (ARM) Loan Details

• A wide variety of terms available (Commonly 3, 5, 7 and 10 year options)
• Rate is fixed for an initial term, then adjusts after that term is over each year
• Purchase & Refinance options
• Interest rates can be lower than fixed-rate mortgage loans, depending on market conditions
• Rate and payment may increase after the initial fixed term is over
• Used most often when buyers intend to sell before the rate resets
• May be a cheaper alternative to renting
• Income qualifications during approval process still may be set at a higher rate than the initial fixed rate to account for future potential adjustments
• Depending on property type, higher down payment may be required when compared to fixed rate loans