Advantages of ARM Loans

With an adjustable-rate mortgage (ARM), the interest rate you pay is adjusted periodically to keep it in line with the changing market rates. This means when interest rates go up, your monthly mortgage payment may also increase. On the other hand, when interest rates go down, your monthly mortgage payments may decrease. 

You may want to consider an ARM loan if you are a first-time home buyer, and do not plan to stay in your first home forever. On average, first time home buyers stay in their first home between five to ten years before selling. If you are not planning on staying in the home long term, an 5/1 or 7/1 ARM loan could be beneficial. ARM loans have an initial fixed-rate period, with the interest rate adjusting annually afterwards. The fixed-interest period can be anywhere from five, seven, or 10 years. For example, a 7/1 ARM would have a fixed-rate for the first seven years, then adjust annually. If you plan on selling before the fixed-rate period is over, then you won't have to worry about the adjusting interest rate.

An ARM loan could be considered if you need a lower initial rate to afford the home you want. ARM loans feature lower starting rates and payments early on. Most ARMs also come with an interest rate cap, a limit on how much your interest rate can increase or decrease.  

For example, Veridian has a yearly cap of 2%, and a lifetime cap of 6%, so if your mortgage starts out at 3% APR, your interest rate can never exceed 9%, and only raises or decreases by 2%, at most, each year. The interest rate cap limits your long-term risk of rising interest rates. 

ARM loans allow borrowers to take advantage of falling rates without refinancing, while also helping to invest and save them more money. 

Contact a Mortgage Loan Originator today!