Adjustable Rate Mortgages (ARM)
These loans can be beneficial for people who plan on staying in their home for a short time.These loans can be beneficial for people who plan on staying in their home for a short time.
3/1 ARM has monthly payments based on a 30-year repayment schedule with an interest rate that remains fixed for the first three years. Beginning with the fourth year, the monthly payments may change. This is referred to as the adjustment period. Adjustment loans usually have an annual cap as well as a lifetime cap. The new rate is based upon changes in the financial index and is calculated by adding a specified amount (the margin) to the index. As an example, if the index equals 4.5% at the adjustment period with a margin of 2.5% the new interest rate would be 7%. If the annual cap however was 2% the new rate would be 6.5%.
5/1 ARM is the same as the 3/1 ARM except the interest rate remains the same for the first five years.
7/1 ARM is the same as the 3/1 ARM except the interest rate remains the same for the first seven years.
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