A common loan option for homebuyers who are seeking flexibility is an adjustable-rate mortgage or ARM. An ARM can be a great home loan option for homebuyers seeking a lower initial mortgage rate or those who are looking for a flexible option to finance their starter home. Whether you're buying your first home or refinancing your current property, our ARM loans offer affordability with flexibility.
Whatever the case may be, an ARM from PrimeLending allows you to accomplish your short-term goals. To accommodate more homebuyers, we offer a wide variety of affordable adjustable-rate loan term lengths including 3/6, 5/6, 7/6, 10/6 and 15/6 ARMs.
ARM vs. fixed-rate mortgage — what’s right for you? Try our free calculator to find out.
What is an Adjustable-Rate Mortgage?
An adjustable-rate mortgage is a home loan option with a variable interest rate. This means that the interest rate on an ARM will, after an initial period of time, adjust over the life of the loan at set intervals, unlike a fixed-rate mortgage which will remain the same for the entire length of the mortgage.
Benefits of an adjustable-rate mortgage include:
- Lower starting interest rate
- Lower starting monthly payment
- Ability to afford more house space
- Possible to pay less in return, in favorable market conditions
How does an ARM work?
An ARM gives homebuyers the advantage of an “introductory” interest rate which is lower than current conventional mortgage rates. The loan proceeds at this rate for an agreed-upon period, usually several years. Once the introductory period expires, the interest rate “resets” — moves up or down in line with the movement of an “index” (major interest rate). Following this movement, the amount of interest you pay each month gets larger or smaller.
ARM loans are often shown as (X/Y). The X represents how many years you will get at the initial fixed interest rate. The Y represents how often the rate will change in years or months throughout the remaining life of the loan. When the rate changes, your monthly payments will increase if rates go up and decrease if rates fall.
Am I eligible for an ARM loan?
A good number of potential homebuyers are eligible to receive an adjustable-rate home loan, making them an appealing option. ARM borrowers typically have some of the following characteristics:
- An income that can handle the maximum rate and monthly payment
- Steady upward movement of income reasonably expected over the coming years
- A low debt load that would not interfere with payments
- Short-term ownership
Recent changes to ARM loans protect borrowers by offering both an adjustment cap and a lifetime cap which limit the amount that an interest rate can adjust — in one adjustment period and over the loan term, respectively. There are also a series of disclosures that the lender must make, such as maximum interest rate and payment.
To learn more about your ARM options and to get a customized loan scenario, contact us today.
