When should you consider an adjustable rate mortgage?
An ARM with a lower initial rate could be a better (and cheaper) way to go if you know that you are planning on living in a home for a short period of time (1-10 years).
What are the popular adjustable rate mortgages The Southern offers?
There are several different types of adjustable rate mortgages, and they are often represented numerically (e.g., 5/1 or 10/1). The first number indicates how long your initial fixed-rate period will last. The second number indicates how often the rate can change within the 30 year term. Some of the most common ARM loans include:
- 5/1 ARM: A 5/1 ARM loan has a fixed rate of interest for the first 5 years of the loan. After that, the interest rate will adjust once annually over the remaining 25 years.
- 7/1 ARM: A 7/1 ARM loan has a fixed rate of interest for the first 7 years of the loan. After that, the interest rate will adjust once annually over the remaining 23 years.
- 10/1 ARM: A 10/1 ARM loan has a fixed rate of interest for the first 10 years of the loan. After that, the interest rate will adjust once annually over the remaining 20 years.
- 5/5 ARM: A 5/5 ARM loan has a fixed rate of interest for the first 5 years of the loan. After that, the interest rate will adjust once annually every 5 years over the remaining 25 years.
- 10/5 ARM: A 10/5 ARM loan has a fixed rate of interest for the first 10 years of the loan. After that, the interest rate will adjust once annually every 5 years over the remaining 20 years.
- 15/5 ARM: A 15/5 ARM loan has a fixed rate of interest for the first 15 years of the loan. After that, the interest rate will adjust once annually every 5 years over the remaining 15 years.
How is an index and margin used in an ARM?
An index is an economic indicator that lenders use to set the interest rate for an ARM. Generally the interest rate that you pay is a combination of the index rate and a pre-specified margin.