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Adjustable Rate Mortgages

While the name of this type of loan almost says it all, there are certain things about Adjustable Rate Mortgages (ARMs) that you should know.

The Rates Are Lower -- Way Lower
Because ARMs are subject to rate adjustments later on, the initial interest rate is set lower than standard fixed rates. This rate provides you with initial lower payments or increased purchasing power.

ARMs Have Changed
Our programs provide an initial fixed rate from three to ten years before the rate adjusts. These options are best for those who want added payment stability and a lower monthly housing expense.

In our program descriptions, the first figure indicates the number of years the initial interest rate will be fixed.  The second figure indicates how often the rate will change after the initial fixed period.  For example, on a "5/1" ARM, the starting rate will remain fixed for the first 5 years and then be subject to rate changes each year thereafter for the remainder of the loan.

Rates are protected by Rate "Caps" - limits on how much the rate can change both annually and over the life of the loan.  For example, caps of "2/5" indicate that the rate cannot change more than 2 percent per year and no more than 5 percent over the life of the loan.  "Caps" vary - please check your loan documents or ask your Loan Officer what the caps are on your loan.

Life Styles Change
First-time homebuyers no longer tend to stay in their "starter" home for 30 years and experienced homeowners often plan to pay off their mortgage long before the 30-year maturity date. Both of these types of members may benefit from choosing an ARM product with an initial fixed-rate period that corresponds with the amount of time their loan is expected to be outstanding.

An adjustable-rate mortgage may be a good choice if you:

  • Want to maximize your buying power
  • Want to keep your payments lower during the first few years of your loan?
  • Plan to move into a different home within the next ten years
  • Plan to pay off your mortgage within the next 10 years
  • If, in the coming years, you expect your income to increase significantly

10/1 Year ARM - Conforming

Best Choice If:

You want a loan with: .
  • Low initial payments
  • Some of the benefits of both a Fixed and ARM product.
    		• Advantages:

  • Interest rate does not adjust for first 10 years. Adjusts annually thereafter
  • Allows for higher loan amount qualification and enhanced buying power.
    		• Disadvantages:

  • Interest rate and monthly payments adjust frequently.
  • Interest rate can rise above the current fixed rates over time.

    • 15/15 ARM - Conforming

    Best Choice If:

    You want a loan with: .
  • Low initial payments
  • Some of the benefits of both a Fixed and ARM product.
    		• Advantages:

  • Interest rate adjusts once, at the 16-year mark.
  • Allows for higher loan amount qualification and enhanced buying power.
    		• Disadvantages:

  • Interest rate can rise above the initial rate at the 16-year mark. Typically, at the most, this would be $250-$350 for the average loan.

    • 3/1 Year ARM - Conforming

    Best Choice If:

    You want a loan with: .
  • Very low initial payments
  • Some of the benefits of both a Fixed and ARM product.
  • Payments that adjust up and down with market movements.
    		• Advantages:

  • Interest rate does not adjust for first 3 years. Adjusts annually thereafter
  • Allows for higher loan amount qualification and enhanced buying power.
    		• Disadvantages:

  • Interest rate and monthly payments adjust frequently.
  • Interest rate can rise above the current fixed rates over time.

    • 5/1 Year ARM - Conforming

    Best Choice If:

    You want a loan with: .
  • Very low initial payments
  • Some of the benefits of both a Fixed and ARM product.
    		• Advantages:

  • Interest rate does not adjust for first 5 years. Adjusts annually thereafter
  • Allows for higher loan amount qualification and enhanced buying power.
    		• Disadvantages:

  • Interest rate and monthly payments will adjust in the future.
  • Interest rate can rise above the current fixed rates over time.

    • 7/1 Year ARM - Conforming

    Best Choice If:

    You want a loan with: .
  • Low initial payments
  • Some of the benefits of both a Fixed and ARM product.
    		• Advantages:

  • Interest rate does not adjust for the first 7 years. Adjusts annually thereafter
  • Allows for higher loan amount qualification and enhanced buying power.
    		• Disadvantages:

  • Interest rate and monthly payments will adjust in the future.
  • Interest rate can rise above the current fixed rates over time.

    • Mortgage Rates

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