Adjustable-Rate Mortgage (ARM)
If you need a lower monthly mortgage payment to start with (you’re a first-time home buyer, for example, or you expect your income to increase over time), an adjustable-rate mortgage can be a great choice.
What is an Adjustable ARM Mortgage?
With an adjustable-rate mortgage, there is an initial loan period where you pay a fixed rate. Then the interest rate changes periodically throughout the remainder of the loan. The interest rate change depends on how the market has fluctuated at that time.
How Does an Adjustable ARM Mortgage Work?
Typically, there is an initial fixed-rate period of 5 to 10 years. The interest rate may adjust each year after that through the end of the loan term. A 5-year or 10-year ARM offers a lower mortgage rate than a traditional 30-year fixed loan. Adjustable-rate mortgages are a great option for those who plan on selling or refinancing their home before the five or ten years are up.
How Long Does an Adjustable ARM Mortgage Last?
An adjustable-rate mortgage lasts for the entire length of your loan. The initial rate and payment amount on an ARM are in effect for a month to five years or more, depending on your terms.
Types of Adjustable ARM Mortgage Loans
- 5/1 ARM - Fixed rate for the first 5 years. Adjusts annually for the remaining years.
- 10/1 ARM - Fixed rate for the first 10 years. Adjusts annually for the remaining years.
- 5/6 ARM - Fixed rate for the first 5 years. Adjusts every 6 months for the remaining years.
- 7/6 ARM - Fixed rate for the first 7 years. Adjusts every 6 months for the remaining years.
- 10/6 ARM - Fixed rate for the first 10 years. Adjusts every 6 months for the remaining years.
We would like to thank Jeff Aguilera for the time and knowledge he provided my wife and I with a very smooth transition in the purchasing of our house. Our real estate agent Emily suggested we go with Jeff and he did not disappoint. So thank you very much, again Jeff. It was a true pleasure working with you.
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A fixed-rate mortgage keeps the same interest rate throughout the life of the loan (i.e., 15 or 30 years).
The interest rate adjusts to current market rates during set periods throughout the life of the loan.
A borrower pays only the interest rate for a certain loan term period, typically for the first few years.
Monthly payments start at a set amount and gradually increase over the life of the loan.