Adjustable Mortgages

Adjustable Rate Mortgage Benefits

How Can an Adjustable Mortgage Help Me?

  • Lower Monthly Mortgage Payments
  • Enable You To Make Interest Only Payments

Adjustable Rate Mortgage Basics

By refinancing, your total finance charges may be higher over the life of the loan. Adjustable Rate Mortgages or (ARM’s) are loans whose interest rate can vary during the loan’s term. These loans have a fixed interest rate for an initial period of time (usually 3, 5, 7, or 10 years) and then typically adjust on a yearly basis. The initial rate on an ARM is usually going to be lower than than what is offered with a 30 Year fixed mortgage and can be advantageous if you plan on being in your home with a timeline of one to ten years. Although rates for these loans are much lower, they may increase significantly after the fixed period.

Adjustable Rate Mortgage Amortization

Adjustable rate mortgages are usually amortized over a period of 30 years with the initial rate being fixed for anywhere from 1 month to 10 years. All adjustable rate mortgages have a “margin” plus an “index”, which makes up the “fully indexed” rate. You choose how long this initial fixed period is. You make it only as long as you will need it, and therefore get a lower rate.

Margins on loans range from 1.5% to 4.5% depending on the index and the amount financed in relation to the property value, otherwise known as the “Loan to Value” of the home. The index is the financial instrument that the adjustable rate mortgage loan is tied to such as: 1-Year Treasury Security, LIBOR (London Interbank Offered Rate), Prime, 6-Month Certificate of Deposit (CD) and the 11th District Cost of Funds (COFI).