Adjustable Rate Mortgage
With an adjustable-rate mortgage (ARM), your interest rate will fluctuate compared to a fixed-rate mortgage that stays the same. Here are a few examples:
- 3/1 ARM, you get a lower introductory rate for the initial three-year period. After that, your rate “adjusts” every year. It can go up or down depending on the market.
- 5/1 ARM, you get a lower introductory rate for the initial five-year period. After that, your rate “adjusts” every year. It can go up or down depending on the market.
Are adjustable mortgages popular?
It depends. If rates are high, and a borrower could get a lower interest rate with an ARM, these loans could be appealing. But, over the last several years, because rates have been historically low — ARMs are not very popular.
Requirements & Qualifications
Most loans offer an option of an adjustable rate. These include:
- Conventional loans
And the requirements and qualifications are the same, although sometimes with a lower rate you can qualify for a larger loan. The adjustable rate is just a change in the terms and conditions of the loan.
When is an ARM a good idea?
If interest rates are high, and you know you’re only going to live in this home for three to five years before you sell it, consider an ARM. You just have to compare the adjustable interest rates to fixed rates.
When is an ARM a bad idea?
If interest rates are high, and you can barely get into a home with an adjustable-rate, take a step back. What happens if the interest rate increases to the point where you can’t afford your house payment?
With an adjustable-rate mortgage, you must look at the worst-case scenario, so you’re not caught off guard.
Homestead is a top lender of adjustable-rate mortgage loans for purchasing and refinancing. Our rates are some of the lowest in the states we serve. Our loan advisors provide excellent service, as you can tell from our reviews. Plus, we close fast!