The initial interest rates on these mortgages will be lower than fixed rate loans and are locked into a specific rate for a stated period of time and will then become adjustable for the remainder of the loan. For example, a 5-year fixed (30-year) mortgage would have a fixed interest rate for the first five years and then convert to an adjustable rate for the remaining 25 years and amortized over 30 years. This adjustment is based on changes in a pre-selected index, and will take place according to a pre-defined schedule (generally every six months or every year). Your interest rate and monthly payment will fluctuate after the fixed rate period based on changes in your index.
Be sure to ask your mortgage loan officer about the yearly and lifetime cap of your ARM-Adjustable Rate Mortgage. There will be a maximum amount the rate can go up each year, and there will be a maximum amount the rate can go up for the life of the loan.
In a rising interest rate market, an ARM can become more popular due to their lower start rates for the fixed period (5, 7 or 10 years). The professionals at Integrated Lending Group can help you determine whether an Adjustable Rate Mortgage is the right mortgage for you and provide you with several options.
Adjustable rate mortgages have more risk due to the possibility that the interest rate could increase.
However, because you are assuming additional risk by taking an Adjustable Rate Mortgage (ARM), the lender will generally reward you with a lower interest rate and monthly payment during the initial fixed interest period. These mortgages are of particular benefit to borrowers that either plan to sell the property or refinance before reaching the adjustable period or believe interest rates will be unchanged or lower in the future.
Types of ARM Mortgages:
5 Year Fixed (30 year)
7 Year Fixed (30 year)
10 Year Fixed (30 year)
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