The Adjustable Rate Mortgage

Have you noticed the many headlines about rising home prices, decreasing foreclosure rates, and “the lowest ever” mortgage rates? Everyone is telling you that now is the time to buy, and they probably have been for months; well, they are right. As a first time homebuyer, or even a repeat buyer, you have many options available to you- Government, Conventional, and Non-Conventional loans. There are different factors and terms such as interest and the length of the loan itself for each of these types of loans and this blog is discussing a product we offer called an adjustable rate mortgage.

Adjustable Rate Mortgages (ARM) typically offer lower interest rates than a fixed rate mortgage because the interest rate is only guaranteed for a specific time frame. ARMs are useful for buyers who are trying to maximize their purchasing power or for buyers who plan on owning a home for a specific period of time. ARM time frames are traditionally for 10, 7, 5, 3, 2, and 1 years, and 6, 3 and 1 month. All of these loans are for a 30-year term and some may be available for a 40-year term. 

Every ARM has a Life Cap which provides a limit on how high the rate can adjust after the initial period has concluded and typically a yearly adjustment which also limits how much the rate can fluctuate from year to year.  Once your initial interest rate period has been completed, the new interest rate is calculated on the anniversary of your mortgage by adding a pre-determined margin to an index.  The index is the instrument we use to determine the future interest rate. Typical indices are the Treasury Bill (T-Bill), London Interbank Offered Rate (LIBOR), and the Monthly Treasury Average (MTA). Your ARM can also be refinanced at any time into a fixed rate or another ARM product.

There are a few things to consider when looking at an adjustable rate mortgage; what’s your time frame for living in that particular house? This is a great mortgage product and it has become increasingly popular, but whether or not it’s right for you is dependent on what you need and your specific situation. We will sit down with you to help you decide what would best for your financial situation. At Intercoastal Mortgage company we pride ourselves in providing you with only the best quality you deserve, contact me to obtain the home of your dreams.