The adjustable rate mortgage or ARM is a mortgage in which the interest rate is adjusted periodically based on a pre-selected index. The index could be for example the one year treasury, cd rates or even cost of funds as measured in a defined geographical area. Also referred to as the variable rate mortgage.An adjustable rate mortgage or variable rate mortgage is a loan secured on a property whose interest rate and monthly repayment vary over time.
Adjustable rate mortgages that have a fixed periods for 3, 5, 7, or 10 years are often called Hybrids. They adjust after the fixed period ends.
Some sub prime ARMS have a pre pay penalty attached to
them. If you are quoted a ARM with a pre pay penalty ask if it is a hard or soft pre pay. A soft pre pay will allow you to sell the house with no penalty. A hard pre pay requires you to pay the penalty if you sell or refinance the mortgage before the pre pay expires. Pre pay
penalties will vary in the amount required from 60 days interest to 6 months interest.
Cash flow ARM and Option ARM programs, also known as pay option arm or 12 month MTA mortgages, are another type of adjustable rate mortgage which gives you the option to defer interest and pay an effective 1.00% start rate on your mortgage.
Generally, when you select to finance your mortgage on an ARM (Adjustable Rate Mortgage) you will want to make sure that your pre-payment penalty does not exceed the fixed period of your loan. Example: If you plan on only living in the house for 2-3 more years and you select a 3/1 ARM, you probably do not want to have a pre-payment penalty that lasts for 5 years.
Hybrid programs are an excellent way to keep your payment lower if you plan to refinance or sell the home in just a few years.
An Arm is a good loan type for people who want to get into a bigger house right now with an upfront lower payment. It is especially good for: those who know their income will increase within the next few years but don't want to wait 2 years for this house, those families that are supported by only one income but the other is preparing to go back to work, and those who want to maximize their cash flow during the first few years of moving into a new house.
A mortgage which has an start rate that adjusts periodically, according to an index. Payments will be low, when interest rates are low and will increase as rates rise. CAPS limit the ARM rate & can adjust during the term of the loan. Most ARM rates are lower than fixed-rate.
The interest rate on ARM's are made up of two components, the index and the margin. When choosing between different ARM programs, it is prudent to understand the volatility of the underlying indices as well as the margins.
An adjustable rate mortgage, also known as an ARM, is a mortgage with an interest rate that is linked to an economic index. The interest rate, and your payments, are periodically adjusted up or down as the index changes. Ask a Mortgage Professional if a ARM is right for you?
