Adjustable Rate Mortgage
An adjustable rate mortgage (ARM) is, in many cases, a hybrid loan. Some ARMs actually have a period in which a person will have a fixed rate. This fixed rate tends to be lower than one that a person would receive with a standard fixed rate mortgage. However, once the period is over, the rate will shift, sometimes becoming considerably higher. People who are interested in an ARM will usually have to go through a bank or savings and loan, as many direct lending services don’t offer the option. Adjusted mortgage loans are usually harder to qualify for than their fixed rate counterparts, because for a certain amount of time, the borrower assumes very low risk. People with bad or even average credit may very well have their ARM applications denied.
3/1, 5/1, and 10/1 Adjustable Mortgage Loans
A standard ARM resets annually. This means that a borrower’s APR can increase after only one year of paying the loan. However, there are 3/1, 5/1, and 10/1 loans that have fixed rates for three years, five years, and ten years, respectively. These loans give a person a chance to enjoy low monthly payments and save money in a way that most other loans do not. Adjustable mortgage loans don’t really benefit people who plan to live in a home for 20 or 30 years. They are much better for individuals or families who intend to move. A person who secures a 3/1, 5/1, or 10/1 adjustable loan will maximize his benefits if he moves soon after the fixed rate term has ended. As time goes on, the loan can become even less beneficial than a long-term fixed rate mortgage loan.
Hot ARM Loans: UPDATE – It marked the highest level for one-year ARMs in three years this month as they seem to be growing in popularity. One-year adjustable rate mortgage rates increased past the 5% level but are still in high demand.