ARM LOANS

An ARM is exactly how it sounds. It is an adjustable rate mortgage loan. The interest rate changes on a specified schedule after the initial fixed term of the loan. What this means is that, after a stated time frame the rate will expire and the interest rate will change based on market tends. As you can see this means the rate could either increase or decrease. The benefit of this loan is that you can get great rates which are usually significantly lower than the standard 30 year fixed rates are, but in exchange your interest rates and payments could potentially rise.

This loan is best when the rates are expected to lower, not rise. If you are planning on owning a home for a few years, and the market rates have signs of decreasing, this may be the best loan for you. If you plan to own the home for many years and the rates are either unpredictable or expected to rise, you might be better off with a fixed rate loan.

Here are the most common ARM loans:

7/1 ARM

This is a 30 year loan that offers a fixed rate for the first 7 years of the loan and then turns into an Adjustable Rate Mortgage every year for the remaining 23 years of the loan.

5/1 ARM

This is a 30 year loan that offers a fixed rate for the first 5 years of the loan and then turns into an Adjustable Rate Mortgage every year for the remaining 25 years of the loan.

3/1 ARM

This is a 30 year loan that offers a fixed rate for the first 3 years of the loan and then turns into an Adjustable Rate Mortgage every year for the remaining 27 years of the loan.