Adjustable Rate Mortgages (ARMs)

Also known as ARMs or Variable Rate Mortgages, these products are great options for the right buyer.

Adjustable-Rate Mortgages

An ARM, or adjustable-rate mortgage, is a common type of mortgage with an introductory interest rate that lasts for a specified length of time before resetting, or increasing, at regular intervals for the remainder of the loan. 

Your interest rate may come down or go up depending on market conditions when the fixed period expires. 

 

Head-to-Head: Fixed-Rate Mortgages vs. ARMs

 

Fixed-Rate Mortgage Adjustable-Rate Mortgage   
Rate remains fixed over the life of the loan. Offers a fixed for a period (often 5,7 or 10 years) then adjusts regularly.
Rate won't go up if market rates increase. Rates are subject to market increases.
Rate won't decrease if market rates go down. Rate will decrease if market rates go down.
Initial rate is higher than the ARM rate. ARMs tend to have lower initial rates than fixed-rate loans.
Good compromise between favorable rates and long-term predictability. Combines short-term predictability with long-term stability.

 

Take Advantage of a Lower Introductory Rate with an ARM

Although your mortgage payment will change when the interest rate resets, adjustable-rate loans are popular since they often have a lower interest rate than fixed-rate loans. when interest rates go down, your monthly mortgage payments may decrease.

The initial interest rate on an ARM may be fixed for as little as 60 months or as much as 10 years (or even longer, depending on the ARM.) 

Many borrowers opt for the 5-year or 7-year ARM options. The interest rate on these hybrids is fixed for the first 60 or 84 months of the loan, respectively, and then resets annually for the remainder of the period.  

5/1, 7/1, or 10/1 ARMs have a fixed duration followed by annual modifications. The defined periods could be used for planning purposes, such as comparing to the period in which you plan to be in this home in the future.

 

 

Why Choose An ARM?

An adjustable-rate mortgage gives you more borrowing flexibility. With an ARM, you choose the term and rate that best fits your situation.

In the current market, many borrowers are choosing ARMs due to their initial low rates and predictable adjustments. With an adjustable-rate mortgage from RoundPoint Mortgage Servicing Corporation, there are no surprises in your adjusted monthly payments, because the interest rate adjusts at predetermined intervals

And you do not need to worry about your loan payments ballooning to unpredictable levels. ARM loans include a cap on how much interest rates can go up over the course of the loan's life.

With an ARM, market volatility can also work in your favor. If interest rates should go down after the fixed-rate period expires, your monthly mortgage payments may decrease.

 

Is an ARM a Good Choice for You?

With home prices remaining high, an ARM can increase borrowers’ buying power by keeping the initial interest rate on the loan within budget. 

With an adjustable-rate mortgage, you need to make certain that your income can comfortably manage any increase in monthly payments after the fixed period ends.

If you are a borrower who moves frequently or you are looking to refinance before the initial terms of the ARM expire, you may be in a position to save money with an ARM over a fixed-rate loan.

Contact one of our local loan officers to talk about your unique financial situation and whether an ARM is the right borrowing solution for you. 

 

Calculator: Which Option Makes the Most Sense for You?

The below calculator can help you determine whether an ARM or a Fixed-Rate Mortgage is the right choice for you.