Understanding Adjustable-Rate Mortgages (ARMs)

Adjustable-rate mortgages, or ARMs, come with distinct features that can align with your financial circumstances, especially in times of rising interest rates driven by inflation. Continue reading as we explore the options designed to help you secure a more favorable interest rate.

But before we get into the details, we’ll also help you establish a strong understanding of ARMs and their potential advantages.

What is an Adjustable-Rate Mortgage (ARM)?

So, what exactly is an ARM? In plain terms, it's a type of mortgage where the interest rate can change periodically. This differs from Fixed-Rate Mortgages, where the interest rate remains constant throughout the loan term. ARMs often start with lower initial interest rates, making them an appealing option for some borrowers.

The Different Types of ARMs?

Now, let's explore the most common types of ARMs available to you:

  • 3/1 ARM (Three-Year Fixed Period): A 3/1 ARM starts with a fixed interest rate for the first three years of your loan. During this time, your interest rate remains stable, providing predictability in your monthly payments. At the end of the fixed period, your interest rate will adjust to the current interest rates, typically on an annual basis.
  • 5/1 ARM (Five-Year Fixed Period): Similar to the 3/1 ARM, a 5/1 ARM offers a five-year fixed period, during which your interest rate remains constant. After the five years, your interest rate may begin to adjust at specified intervals, typically annually.
  • 5/6 ARM (Five/Six ARM with Semi-Annual Adjustments): This type of mortgage features semi-annual adjustments after the five year fixed period. During the fixed period, your interest rate remains stable. However, once the initial period concludes, your interest rate will adjust every six months.
  • 7/1 ARM (Seven-Year Fixed Period): With a 7/1 ARM, you enjoy a seven-year fixed interest rate period, providing stability in your monthly payments. After this initial fixed period, your interest rate may adjust regularly, typically once a year.
  • 7/6 ARM (Seven/Six ARM with Semi-Annual Adjustments): The 7/6 ARM offers the same initial fixed period of seven years but with the unique feature of semi-annual adjustments. After the initial seven years, your interest rate will adjust every six months.
  • 10/1 ARM (Ten-Year Fixed Period): A 10/1 ARM provides a decade-long fixed interest rate period, giving you extended stability in your monthly mortgage payments. Once this ten-year period concludes, your interest rate may adjust periodically.
  • 10/6 ARM (Ten/Six ARM with Semi-Annual Adjustments): The 10/6 ARM offers ten years of fixed-rate payments, followed by semi-annual adjustments. After the initial ten-year fixed period, your interest rate will adjust every six months.

These ARM options allow you to choose a mortgage that aligns with your financial goals and how long you plan to stay in your home. While they provide lower initial interest rates and potential cost savings, it's essential to consider your long-term financial strategy when selecting the right ARM for you. Our preferred lenders have the expertise to guide you through this decision-making process, ensuring you make choices that align with your financial and homeownership plans.

What About Buying My Rate Down?

Mortgage rate buy-down programs perfectly complement Adjustable-Rate Mortgages (ARMs). These programs are your ticket to reducing interest rates, either for a predetermined period or the entire loan term, all in exchange for an upfront fee known as mortgage points. Generally, each mortgage point accounts for approximately 1% of your total loan amount.

In the context of ARMs, these programs can be particularly advantageous, allowing you to take control of your interest rates and tailor them to your financial preferences.

Finding the Right Mortgage for Your Dream Home

ARMs offer an intriguing alternative to traditional fixed-rate mortgages. They can be particularly attractive when interest rates are climbing as you seek ways to manage your homebuying costs. We encourage you to explore ARMs with one of our preferred lenders to determine the best mortgage option for your unique financial goals. Your journey to homeownership begins with understanding your financing options.

Ready to explore your mortgage options and find the perfect financing solution for your dream home? Contact us, and let's start turning your homeownership dreams into reality. Our team of experts is here to guide you every step of the way!