What’s an adjustable-rate mortgage?
In the world of mortgage, you have multiple options! Sometimes, it can be a little overwhelming when it comes to deciding which mortgage option is right for you. One option is an adjustable-rate mortgage, or ARM for short. But what exactly is an adjustable-rate mortgage? Let us break it down for you!
Adjustable vs. fixed-rate
Fixed-rate mortgages have the same interest rate for the entire length of the loan. That means your monthly payment will only change because of property taxes or insurance. Adjustable-rate mortgages, on the other hand, might not have the same interest rate for the entire length of the loan. Instead, your rate will be fixed for a certain number of years, and afterwards, it might change periodically depending on the term you choose! ARM products typically have lower fees and closing costs as well.
ARMs are great for those who:
- Plan to live in their home for only a few years
- Prefer a lower initial interest rate and monthly payment
One thing to keep in mind, though, is that your rate could increase or decrease after the initial lock period based on market conditions.
Different ARM products
ARM products come in a variety of lengths and terms. Examples of different ARM mortgage products could be described as a 10/1 or 3/3. But what do these numbers mean?
Don’t let those numbers confuse you! It’s actually quite simple to understand! The first number is how long you’ll have a fixed rate. The second number is how often your rate will adjust after the initial lock period. For example:
A 10/1 adjustable-rate mortgage means you’ll have a fixed interest rate for the first 10 years of your loan. After the first 10 years, your rate will be adjusted annually.
Have questions for us? We’d love to help you for all your mortgage needs! Make an appointment to meet with one of our mortgage consultants.