ARM vs, adjustable rate mortgage.#Adjustable #rate #mortgage


Choosing between an adjustable-rate and fixed-rate mortgage

Adjustable rate mortgage

Chris Hackett/Getty Images

Which is the better mortgage option for you: fixed or adjustable?

The low initial cost of adjustable-rate mortgages, or ARMs, can be tempting to homebuyers, yet they carry a degree of uncertainty.

Fixed-rate mortgages offer rate and payment security, but they can be more expensive.

Here are some pros and cons of adjustable-rate and fixed-rate mortgages.

Adjustable-rate mortgages

  • Feature lower rates and payments early on in the loan term. Because lenders can use the lower payment when qualifying borrowers, people can buy larger homes than they otherwise could buy.
  • Allow borrowers to take advantage of falling rates without refinancing. Instead of having to pay a whole new set of closing costs and fees, ARM borrowers just sit back and watch the rates — and their monthly payments — fall.
  • Help borrowers save and invest more money. Someone who has a payment that’s $100 less with an ARM can save that money and earn more off it in a higher-yielding investment.
  • Offer a cheaper way for borrowers who don’t plan on living in one place for very long to buy a house.
  • Rates and payments can rise significantly over the life of the loan. A 4 percent ARM can end up at 9 percent in just three years if rates rise sharply.
  • The first adjustment can be a doozy because some annual caps don’t apply to the initial change. Someone with a lifetime cap of 6 percent could theoretically see the rate shoot from 4 percent to 10 percent a year after closing if rates in the overall economy skyrocket.
  • ARMs are difficult to understand. Lenders have much more flexibility when determining margins, caps, adjustment indexes and other things, so unsophisticated borrowers can easily get confused or trapped by shady mortgage companies.
  • On certain ARMs, called negative amortization loans, borrowers can end up owing more money than they did at closing. That’s because the payments on these loans are set so low (to make the loans even more affordable) that they cover only part of the interest due. The remainder gets rolled into the principal balance.

Fixed-rate mortgages

  • Rates and payments remain constant, despite what happens in the broader economy.
  • Stability makes budgeting easier. People can manage their money with more certainty because their housing payments don’t change.
  • Simple to understand, so they’re good for first-time buyers who wouldn’t know a 7/1 ARM with 2/6 caps if it hit them over the head.
  • To take advantage of lower rates, fixed-rate mortgage holders have to refinance. That means a few thousand dollars in closing costs, another trip to the title company’s office and several hours spent digging up tax forms, bank statements, etc.
  • Can be too expensive for some borrowers because there is no early-on payment and rate break.
  • Are virtually identical from lender to lender. While lenders keep many ARMs on their books, most financial institutions sell their fixed-rate mortgages on the secondary market. As a result, ARMs can be customized for individual borrowers, while most fixed-rate mortgages can’t.

All of these things should factor into your decision between a fixed-rate mortgage and an adjustable. But there are other important questions to answer when deciding which loan is better for you:

1. How long do you plan on staying in the home?

If you’re going to be living in the house only a few years, it would make sense to take the lower-rate ARM, especially if you can get a reasonably priced 3/1 or 5/1. Your payment and rate will be low, and you can build up savings for a bigger home down the road. Plus, you’ll never be exposed to huge rate adjustments because you’ll be moving before the adjustable rate period begins.

2. How frequently does the ARM adjust, and when is the adjustment made?

After the initial, fixed period, most ARMs adjust every year on the anniversary of the mortgage. The new rate is actually set about 45 days before the anniversary, based on the specified index. But some adjust as frequently as every month. If that’s too much volatility for you, go with a fixed-rate mortgage.

3. What’s the interest rate environment like?

When rates are relatively high, ARMs make sense because their lower initial rates allow borrowers to still reap the benefits of homeownership. When rates are falling, borrowers have a decent chance of getting lower payments even if they don’t refinance. When rates are relatively low, however, fixed-rate mortgages make more sense.

4. Could you still afford your monthly payment if interest rates rise significantly?

On a $150,000 one-year adjustable-rate mortgage with 2/6 caps, your 5.75 percent ARM could end up at 11.75 percent, with the monthly payment shooting up as well.


Adjustable Rate Mortgage (ARM), Quicken Loans, adjustable rate mortgage calculator.#Adjustable #rate #mortgage #calculator


Adjustable Rate Mortgage

Adjustable rate mortgage calculator

With Rocket Mortgage by Quicken Loans, our fast, powerful and completely online way to get a mortgage, you can find out which loan option is right for you.

Not comfortable starting online? Answer a few questions, and we ll have a Home Loan Expert call you.

Key Benefits

Get a mortgage rate as low as 3.50% (4.148% APR) with the 5-year adjustable rate mortgage.

  • Do you want to significantly reduce the cost of your mortgage?
  • Do you plan to move or refinance in the next 5, 7 or 10 years?
  • Do you want the lowest mortgage rate available?

If you answered yes to any of these questions, an adjustable rate mortgage might be right for you! Whether you choose the 5-year, the 7-year or the 10-year adjustable rate mortgage, you’ll get the lowest rate we offer and save thousands over a traditional fixed-rate mortgage during the initial fixed-rate period. Afterwards, the rate may change once per year.

Why you should choose Quicken Loans

  • Only Quicken Loans offers you the Closing Cost Cutter and PMI Advantage. Find out how these great options can help guide you to the best decision to meet your financial goals.
  • With more than 32 years of experience, we’ve designed a mortgage process that adapts to your needs.
  • Our powerful online tools, like MyQL Mobile, allow us to close your loan quickly. This app is exclusive to Quicken Loans clients and works with iPhone ® and Android™!

Other loans you might be interested in:

How It Works

Adjustable rate mortgage qualification requirements

  • Refinance up to 95% of your primary home’s value
  • Buy a home with as little as 5% down (primary home)

ARM Calculator: Adjustable Rate Home Loan Calculator: Estimate 3, adjustable rate mortgage calculator.#Adjustable #rate #mortgage


Adjustable Rate Mortgage Calculator

Thinking of getting a variable rate loan? Use this tool to figure your expected monthly payments before and after the reset period.

Current ARM Mortgage Rates

Understanding Adjustable-Rates

The U.S. has always been the world capital of consumer choice. Visitors are often overwhelmed by the variety offered in our stores, supermarkets, and service industries. And the mortgage game is no different.

When making a major purchase like a home or RV, Americans have many different borrowing options at their fingertips, such as a fixed-rate mortgage or an adjustable-rate mortgage.

Almost everywhere else in the world, homebuyers have only one real option, the ARM (which they call a variable-rate mortgage).

What Are Adjustable Rate Mortgages?

An ARM is a loan with an interest rate that is adjusted periodically to reflect the ever-changing market conditions.

Usually, the introductory rate lasts a set period of time and adjusts every year afterward until the loan is paid off. An ARM lasts a total of thirty years, and after the set introductory period, your interest cost and your monthly payment will change.

Of course, no one knows the future, but a fixed can help you prepare for it, no matter how the tides turn. If you use an ARM it is harder to predict what your payments will be.

You can predict a rough range of how much your monthly payments will go up or down based on two factors, the index and the margin. While the margin remains the same for the duration of the loan, the index value varies. An index is a frame of reference interest rate published regularly. It includes indexes like U.S. Treasury T-Bills, the 11th District Cost of Funds Index (COFI), and the London Interbank Offered Rate (LIBOR).

Adjustable-Rates vs. Fixed-Rates

Adjustable rate mortgage calculatorEvery potential homebuyer faces this decision, and there are pros and cons to both kinds of mortgages. What you plan to do both in the near and distant future determines which loan arrangement will be best for you.

The APR of a fixed-rate mortgage (FRM) remains the same for the life of the loan, and most homeowners like the security of locking in a set rate and the ease of a payment schedule that never changes. However, if rates drop dramatically, an FRM would need to be re-financed to take advantage of the shift, and that isn’t easy at all.

An ARM is more of a roller coaster ride that you put your whole house on. It fluctuates with the real estate market and with the economy in general. The sweet five percent deal you have today could shoot up to eight percent if LIBOR goes up.

What Are The Common Reset Points?

The reset point is the date your ARM changes from the introductory rate to the adjustable-rate based on market conditions. Many consumers wrongly believe this honeymoon period of having a preset low monthly payment needs to be as short as it is sweet.

But nowadays, it is not uncommon to set mortgage reset points years down the road. Reset points are typically set between one and five years ahead. Here are examples of the most popular mortgage reset points:

  • 1 Year ARM – Your APR resets every year.
  • 3/1 ARM – Your APR is set for three years, then adjusts for the next 27 years.
  • 5/1 ARM – Your APR is set for five years, then adjusts for the next 25 years.
  • 7/1 ARM – Your APR is set for seven years, then adjusts for the next 23 years.
  • 10/1 ARM – Your APR is set for ten years, then adjusts for the next 20 years.

What is the Difference Between a Standard ARM Loan and Hybrid ARMs?

A hybrid ARM has a honeymoon period where rates are fixed. Typically it is 5 or 7 years, though in some cases it may last either 3 or 10 years.

Some hybrid ARM loans also have less frequent rate resets after the initial grace period. For example a 5/5 ARM would be an ARM loan which used a fixed rate for 5 years in between each adjustment.

A standard ARM loan which is not a hybrid ARM either resets once per year every year throughout the duration of the loan or, in some cases, once every 6 months throughout the duration of the loan.

What do Rates Reset Against?

ARMs are typically tied to one of the following 3 indexes:

  • London Interbank Offered Rate (LIBOR) – The rate international banks charge one another to borrow.
  • 11th District Cost of Funds Index (COFI) – The rate banks in the western U.S. pay depositors.
  • Constant maturity yield of one-year Treasury bills – The U.S. Treasury yield, as tracked by the Federal Reserve Board.

Who Are ARMS Good For?

Adjustable-rate mortgages are not for everyone, but they can look very attractive to people who are either planning to move out of the house in a few years or those who are counting on a significant raise in income in the near future.

Basically, if your reset point is seven years away and you plan to move out of the house before then, you can manage to get out of Dodge before the costlier payment schedule kicks in.

Others who will benefit greatly from the flexibility of an ARM are people who expect a sizeable raise, promotion, or expansion in their careers. They can afford to buy a bigger house right now, and they will have more money to work with in the future when the reset date arrives. When the reset happens if rates haven’t moved up they can refinance into a FRM.

Who Are ARMS Bad For?

ARMs are bad for worrywarts. If life’s little uncertainties make you feel queasy, you may worry about the future of interest rates every waking moment. But don’t worry – you won’t end up losing the farm (or your signed Don Drysdale baseball card) because ARMs have caps on them.

A cap is a ceiling, or a limit on the amount your loan rate can increase annually for the duration of the loan. Adjustable-rate mortgage caps are usually set between two and five percent, and they carry a maximum yearly increase of two percent.

That is not exactly risky proposition, but it can appear so to a non-gambler.

You can run the numbers in advance to estimate the monthly cost at different APRs. Our above calculator does this automatically based on the cap you enter.

Compare Your Options

Adjustable rate mortgage calculatorCompare IO ARMs or fixed, adjustable interest-only loans side by side. Adjustable rate mortgage calculator

Avantages And Disadvantages

  • Lower payments and rates early in the loan term, allowing borrowers to buy larger, more expensive homes.
  • ARM holders can take advantage of falling rates without lifting a finger, avoiding the inconvenience and high cost of refinancing, including a new set of closing costs and transaction fees.
  • It’s an affordable way for borrowers with limited funds to buy a house if they don’t plan on living in one place for a long time.
  • Rates and monthly payments can rise dramatically over the course of a 30-year commitment. A six percent ARM can skyrocket to eleven percent in as little as three years.
  • The first adjustment after your initial set period can be more shocking than any sticker you’ve ever seen because annual caps sometimes don’t apply to the first payments after the reset point arrives. Be sure to read the small print!
  • ARMs are complex agreements, and novice borrowers can easily be misled and bamboozled by slick talk about margins, caps, ARM indexes, and other industry jargon – particularly if the lender is somewhat shady.

Borrower Beware

ARMs are not for the faint-hearted. They offer a better life to those who want lower payments now in exchange for spending more down the road. But make no mistake, your monthly payments will likely increase when your rate is adjusted.

You must be prepared financially for the end of the honeymoon. Because caps often don’t apply to the one-time initial adjustment, you could see a worst-case scenario of your six percent rate adjusting to ten or twelve percent a year if interest rates in the overall economy shoot up.

If you found this guide helpful you may want to consider reading our comprehensive guide to adjustable-rate mortgages.

You can also download an ARM loan worksheet bring it to your financial institution. We offer versions in the following formats: PDF, Word Excel.


Types of Loan Programs: Conforming, Jumbo Loans, FRM, ARM, Balloon Mortgage, what is an adjustable


what is an adjustable rate mortgage

What is an adjustable rate mortgage

What is an adjustable rate mortgage

What is an adjustable rate mortgage

What is an adjustable rate mortgage

Types of Mortgage Loans

Conventional and Government Loans

Any mortgage loan other than an FHA, VA or an RHS loan is conventional one.

The Federal Housing Administration (FHA), which is part of the U.S. Dept. of Housing and Urban Development (HUD), administers various mortgage loan programs. FHA loans have lower down payment requirements and are easier to qualify than conventional loans. FHA loans cannot exceed the statutory limit. Go to FHA Programs page to get more information.

If you are looking for an FHA home loan right now, please feel free to request personalized rate quotes from HUD-approved mortgage lenders via our website.

VA loans are guaranteed by U.S. Dept. of Veterans Affairs. The guaranty allows veterans and service persons to obtain home loans with favorable loan terms, usually without a down payment. In addition, it is easier to qualify for a VA loan than a conventional loan. Lenders generally limit the maximum VA loan to $203,000. The U.S. Department of Veterans Affairs does not make loans, it guarantees loans made by lenders. VA determines your eligibility and, if you are qualified, VA will issue you a certificate of eligibility to be used in applying for a VA loan.

VA-guaranteed loans are obtained by making application to private lending institutions. If you are interesting in obtaining a VA-guaranteed loan you can try our VA loan request form.

Please see also pamphlets published by VA.

RHS Loan Programs

The Rural Housing Service (RHS) of the U.S. Dept. of Agriculture guarantees loans for rural residents with minimal closing costs and no downpayment. Visit our page RHS programs for details.

Ginnie Mae which is part of HUD guarantees securities backed by pools of mortgage loans insured by these three federal agencies – FHA, or VA, or RHS. Securities are sold through financial institutions that trade government securities.

State and Local Housing Programs

Many states, counties and cities provide low to moderate housing finance programs, down payment assistance programs, or programs tailored specifically for a first time buyer. These programs are typically more lenient on the qualification guidelines and often designed with lower upfront fees. Also, there are often loan assistance programs offered at the local or state level such as MCC (Mortgage Credit Certificate) which allows you a tax credit for part of your interest payment. Most of these programs are fixed rate mortgages and have interest rates lower than the current market.

Conventional loans may be conforming and non-conforming. Conforming loans have terms and conditions that follow the guidelines set forth by Fannie Mae and Freddie Mac. These two stockholder-owned corporations purchase mortgage loans complying with the guidelines from mortgage lending institutions, packages the mortgages into securities and sell the securities to investors. By doing so, Fannie Mae and Freddie Mac, like Ginnie Mae, provide a continuous flow of affordable funds for home financing that results in the availability of mortgage credit for Americans.

Fannie Mae and Freddie Mac guidelines establish the maximum loan amount, borrower credit and income requirements, down payment, and suitable properties. Fannie Mae and Freddie Mac announces new loan limits every year.

The national conforming loan limit for mortgages that finance single-family one-unit properties increased from $33,000 in the early 1970s to $417,000 for 2006-2008, with limits 50 percent higher for four statutorily-designated high cost areas: Alaska, Hawaii, Guam, and the U.S. Virgin Islands. Since early 2008, a series of legislative acts have temporarily increased the one-unit limit to up to $729,750 in certain high-cost areas in the contiguous United States. Permanent limits, which apply to the Enterprises’ acquisitions of certain mortgages originated prior to July 1, 2007, are set under the terms of the Housing and Economic Recovery Act of 2008 (HERA).

For every county and county-equivalent in the country, maximum loan limits for mortgages can be found at: http://www.fhfa.gov/Default.aspx?Page=185

The 2013 conforming loan limits for first mortgages remain at the limits set in 2006, 2007, 2008, 2010 and 2011:


ARM vs, what is an adjustable rate mortgage.#What #is #an #adjustable #rate #mortgage


Choosing between an adjustable-rate and fixed-rate mortgage

What is an adjustable rate mortgage

Chris Hackett/Getty Images

Which is the better mortgage option for you: fixed or adjustable?

The low initial cost of adjustable-rate mortgages, or ARMs, can be tempting to homebuyers, yet they carry a degree of uncertainty.

Fixed-rate mortgages offer rate and payment security, but they can be more expensive.

Here are some pros and cons of adjustable-rate and fixed-rate mortgages.

Adjustable-rate mortgages

  • Feature lower rates and payments early on in the loan term. Because lenders can use the lower payment when qualifying borrowers, people can buy larger homes than they otherwise could buy.
  • Allow borrowers to take advantage of falling rates without refinancing. Instead of having to pay a whole new set of closing costs and fees, ARM borrowers just sit back and watch the rates — and their monthly payments — fall.
  • Help borrowers save and invest more money. Someone who has a payment that’s $100 less with an ARM can save that money and earn more off it in a higher-yielding investment.
  • Offer a cheaper way for borrowers who don’t plan on living in one place for very long to buy a house.
  • Rates and payments can rise significantly over the life of the loan. A 4 percent ARM can end up at 9 percent in just three years if rates rise sharply.
  • The first adjustment can be a doozy because some annual caps don’t apply to the initial change. Someone with a lifetime cap of 6 percent could theoretically see the rate shoot from 4 percent to 10 percent a year after closing if rates in the overall economy skyrocket.
  • ARMs are difficult to understand. Lenders have much more flexibility when determining margins, caps, adjustment indexes and other things, so unsophisticated borrowers can easily get confused or trapped by shady mortgage companies.
  • On certain ARMs, called negative amortization loans, borrowers can end up owing more money than they did at closing. That’s because the payments on these loans are set so low (to make the loans even more affordable) that they cover only part of the interest due. The remainder gets rolled into the principal balance.

Fixed-rate mortgages

  • Rates and payments remain constant, despite what happens in the broader economy.
  • Stability makes budgeting easier. People can manage their money with more certainty because their housing payments don’t change.
  • Simple to understand, so they’re good for first-time buyers who wouldn’t know a 7/1 ARM with 2/6 caps if it hit them over the head.
  • To take advantage of lower rates, fixed-rate mortgage holders have to refinance. That means a few thousand dollars in closing costs, another trip to the title company’s office and several hours spent digging up tax forms, bank statements, etc.
  • Can be too expensive for some borrowers because there is no early-on payment and rate break.
  • Are virtually identical from lender to lender. While lenders keep many ARMs on their books, most financial institutions sell their fixed-rate mortgages on the secondary market. As a result, ARMs can be customized for individual borrowers, while most fixed-rate mortgages can’t.

All of these things should factor into your decision between a fixed-rate mortgage and an adjustable. But there are other important questions to answer when deciding which loan is better for you:

1. How long do you plan on staying in the home?

If you’re going to be living in the house only a few years, it would make sense to take the lower-rate ARM, especially if you can get a reasonably priced 3/1 or 5/1. Your payment and rate will be low, and you can build up savings for a bigger home down the road. Plus, you’ll never be exposed to huge rate adjustments because you’ll be moving before the adjustable rate period begins.

2. How frequently does the ARM adjust, and when is the adjustment made?

After the initial, fixed period, most ARMs adjust every year on the anniversary of the mortgage. The new rate is actually set about 45 days before the anniversary, based on the specified index. But some adjust as frequently as every month. If that’s too much volatility for you, go with a fixed-rate mortgage.

3. What’s the interest rate environment like?

When rates are relatively high, ARMs make sense because their lower initial rates allow borrowers to still reap the benefits of homeownership. When rates are falling, borrowers have a decent chance of getting lower payments even if they don’t refinance. When rates are relatively low, however, fixed-rate mortgages make more sense.

4. Could you still afford your monthly payment if interest rates rise significantly?

On a $150,000 one-year adjustable-rate mortgage with 2/6 caps, your 5.75 percent ARM could end up at 11.75 percent, with the monthly payment shooting up as well.


How Much Money Can I Save Using an Adjustable-Rate Mortgage, what is an adjustable rate


How Much Can I Save With an Adjustable-Rate Mortgage?

By Brandon Cornett | 2017, all rights reserved | Duplication prohibited

Reader question: I’ve heard that ARM loans are a good deal right now, because of the rates being so low. But I’ve also heard they are dangerous and that they basically caused the house crisis. How much money could I save by using an adjustable-rate mortgage loan? And are they worth the risk?

ARM loans did not cause the housing crisis. Irresponsible lending did. Granted, adjustable mortgages created problems for a lot of homeowners before, during and after the housing bust. But that had more to do with the way they were used than the loans themselves.

As you’ll learn during the course of this article, ARM loans are not inherently evil. They have certain pros and cons like any other mortgage product. As a home buyer, the best thing you can do is study those pros and cons, before making a decision.

It’s true that you could save money by using an adjustable-rate mortgage loan. But your savings will probably be limited to the first 1 – 5 years of the term. After that, your interest rate might rise to a higher level than a 30-year fixed-rate mortgage. We will discuss all of this in detail below. I’ll also show you how much money you might save by with ARM loan, using some realistic numbers.

But first, a bit of background.

How an Adjustable Mortgage Works

A traditional mortgage loan has the same interest rate for the full term of the loan, even if the term is for 30 years or more. But the adjustable-rate mortgage (ARM) works differently. As its name implies, the ARM loan has an interest rate that changes during the life of the mortgage. The rate may adjust up or down, depending on the index it is tied to.

These days, a lot of adjustable-rate mortgages are tied to the one-year constant-maturity Treasury bill (CMT) or the London Interbank Offered Rate (LIBOR). When these indexes go up, they take the ARM loan interest rates with them.

Most of the ARMs in use today are technically hybrid loans. They get this name because they start with a fixed interest rate for a certain period of time, after which they start to adjust periodically. Take, for example, the 5/1 ARM loan. This mortgage product starts off with a fixed rate of interest for the first five years. After that five-year period, the rate will start adjusting every year. That’s where the 5/1 label comes from — five years fixed, followed by adjustments every year thereafter.

How Much Money Can You Save?

What’s the appeal of using an adjustable-rate mortgage loan? Why would somebody choose to ride a rollercoaster of interest rate fluctuations? The answer lies within the initial phase of the loan. During the initial fixed-rate period, a hybrid ARM loan will generally have a lower interest rate than its fixed-rate counterpart. For example, take a look at the mortgage rate snapshot below:

What is an adjustable rate mortgage

The snapshot above was taken on May 11, 2011. By the time you read this article, the average rates will surely be different than those shown above. But that’s not the point. What I want you to focus on is the difference between the 30-year fixed-rate mortgage (FRM) and the 5/1 ARM loan.

You can see that the average rate for the 5/1 ARM is lower than the rate for the 30-year FRM, by more than a percent. This is typical. And it answers the question I posed earlier: Why do people use adjustable-rate mortgages? They do it to secure a lower rate — at least during the initial phase of the ARM loan. This makes for a smaller mortgage payment each month.

Saving Money With a Lower Interest Rate

So let’s play with these numbers and see how much money we could save, by using the 5-year adjustable option instead of the fixed-rate loan. Assuming we could qualify for the average rates listed above, it would break down like this.

  • For a $250,000 mortgage loan with an interest rate of 4.6 percent and a 30-year term, my monthly payment would be around $1,281.
  • For the same loan amount and term, but with an interest rate of 3.41 percent, my monthly payment would be around $1,110.

So if I used a 5/1 ARM loan to secure the lower interest rate shown in the table above, my monthly payment would be about $171 less than the 30-year fixed-rate mortgage. Remember, the 5/1 adjustable-rate mortgage is a hybrid loan that starts off with a fixed rate for the first five years. During that initial five-year period, I could save more than $10,000 by securing the lower rate that comes with the ARM:

171 x 60 = $10,260 in savings

  • 171 = amount of monthly savings resulting from the lower rate
  • 60 = the number of months / mortgage payments during the five-year period
  • $10,260 = total amount of money I would save by using the ARM with a lower rate

Of course, this is only for the first five years of the adjustable-rate mortgage. After that the interest rate on the ARM loan would begin to adjust every year. So the monthly payment amount would change along with it. You can never predict exactly how the rate will change, but they usually adjust upward over time. So you can certainly save money by using a hybrid-style adjustable mortgage, over its fixed-rate counterpart. But you will also face some uncertainty at the first adjustment point. How much will your monthly payment go up? It’s a hard question to answer.

Getting Stuck With an ARM Loan

Some home buyers plan to start out with an adjustable-rate mortgage, and then refinance into a fixed-rate loan later on. This is a reasonable strategy on paper. But several things could happen to prevent you from refinancing:

  • You could lose some of your income, and thus your ability to make your payments.
  • You could accumulate too much debt in other areas (credit cards, personal loans, etc.).
  • Your home could depreciate in value, reducing your equity.

All three of these things could hurt your chances of getting a refinance loan down the road. So you can’t roll the dice on an ARM loan by banking on a refi. There’s a chance you won’t be able to refinance. Could you afford the new payments, once the loan starts adjusting? What if your monthly payments rise significantly? Are you already at the limits of your budget? If so, it’s a recipe for default and possible foreclosure.

The same goes for selling the home. Some people use an adjustable-rate mortgage to secure a lower rate, with the intention of selling the home before the first adjustment period. But here again, there’s no guarantee you’ll be able to sell your home. For instance, if your property value dropped to the point that you were upside down in the loan, you would have a tough time selling the house. You would need your lender’s permission as well, if you were unable to pay off the loan through the sale.

You can save money by using an adjustable-rate mortgage to secure a lower rate. But you need to think about your long-term plans. If you’re only going to be in the house for a few years before moving again, the ARM loan might be a smart move. If you’re planning to stay in the home for many years, you might be better off with a fixed-rate loan.


Adjustable-Rate Mortgages, Learn More about ARM Loans, adjustable rate mortgage.#Adjustable #rate #mortgage


Adjustable-rate mortgages: Learn the basics of ARMs

Adjustable-rate mortgages, or ARMs, have monthly payments that can move up and down as interest rates fluctuate.

Most ARMs have an initial fixed-rate period during which the borrower’s rate doesn’t change, followed by a longer period during which the rate changes at preset intervals.

What is an adjustable-rate mortgage?

An adjustable-rate mortgage, or ARM, is a home loan with an interest rate that can change periodically. This means that the monthly payments can go up or down.

  • Generally, the initial interest rate is lower than on a comparable fixed-rate mortgage.
  • After the fixed-rate period ends, the interest rate can go lower, so monthly payments can fall.
  • After the fixed-rate period ends, the interest rate can rise, so monthly payments can go up, too.
  • Interest rates are unpredictable, so you can’t predict what your payments will be in the future.

Adjustable rates start low

Interest rates charged during the initial fixed-rate period are generally lower than those on comparable fixed-rate mortgages. See how various mortgage rates compare with one another.

Fixed-rate periods

The most popular adjustable-rate mortgage is the 5/1 ARM:

  • The 5/1 ARM’s introductory rate lasts for five years. (That’s the “5” in 5/1.)
  • After that, the interest rate can change every year. (That’s the “1” in 5/1.)

Some lenders offer 3/1 ARMs, 7/1 ARMs and 10/1 ARMs.

ARMs follow rate indexes and margins

After the fixed-rate period ends, an ARM’s interest rate moves up and down with another interest rate, called the index. The index is an interest rate set by market forces and published by a neutral party. There are many indexes, and the loan paperwork identifies which index a particular ARM follows.

To set the ARM rate, the lender takes the index rate and adds an agreed-upon number of percentage points, called the margin. The index rate can change, but the margin does not.

For example, if the index is 1.25 percent and the margin is 3 percentage points, they are added together for an interest rate of 4.25 percent. If, a year later, the index is 1.5 percent, then the interest rate will rise to 4.5 percent.

Major indexes

Most ARM rates are tied to the performance of one of three major indexes.

Major indexes for adjustable-rate mortgages

  • Weekly constant maturity yield on one-year Treasury bill. The yield debt securities issued by the U.S. Treasury are paying, as tracked by the Federal Reserve Board.
  • 11th District cost of funds index (COFI). The interest financial institutions in the western U.S. are paying on deposits they hold.
  • London Interbank Offered Rate (Libor). The rate most international banks are charging each other on large loans. Libor will be phased out by the end of 2021.

Sky’s not the limit

You’re insulated from huge year-to-year increases in monthly payments because ARMs come with caps limiting the amount by which rates and payments can change.

Caps come in several forms:

  • A periodic rate cap limits how much the interest rate can change from one year to the next.
  • A lifetime rate cap limits how much the interest rate can rise over the life of the loan.
  • A payment cap limits the amount the monthly payment can rise over the life of the loan in dollars, rather than how much the rate can change in percentage points.

Adjustable Rate Mortgage Calculator › First Bank & Trust Company #fha #mortgage #calculator


#adjustable rate mortgage calculator

#

First Bank and Trust Company

Scroll to the left to view the rest of the calculator.

Adjustable Rate Mortgage Calculator

Adjustable rate mortgages can provide attractive interest rates, but your payment is not fixed. This calculator helps you to determine what your adjustable mortgage payments may be.

Javascript is required for this calculator. If you are using Internet Explorer, you may need to select to ‘Allow Blocked Content’ to view this calculator.

For more information about these these financial calculators please visit: Dinkytown Financial Calculators from KJE Computer Solutions, LLC

Information and interactive calculators are made available to you as self-help tools for your independent use and are not intended to provide investment advice. We cannot and do not guarantee their applicability or accuracy in regards to your individual circumstances. All examples are hypothetical and are for illustrative purposes. We encourage you to seek personalized advice from qualified professionals regarding all personal finance issues.


Adjustable Rate vs Fixed Rate Mortgage Calculator #mortgage #rates #indiana


#what is an arm mortgage

#

ARM vs Fixed Rate Mortgage Calculator

Use this free tool to compare fixed rates side by side against amortizing and interest-only ARMs.

Understanding The Types of Mortgages Available

Fixed Rates

Fixed-rate mortgages are the most common way to finance a home in the United States. They allow home buyers to lock in a set APR and stable monthly payment for the duration of the loan.The most popular term is the 30-year mortgage, but the 15-year option is not uncommon.

The primary benefits of FRMs are

  • helps buyers build equity in their home;
  • stability in their monthly payments APR, while allowing customers to refinance if rates fall

The drawbacks of FRMs are

  • higher initial monthly payments;
  • higher initial APR – though they are lower than the maximum ARM cap rates can be refinanced if rates drop

Adjustable Rates

Do you know what they call an adjustable-rate mortgage in Europe?

That’s because homebuyers in most of the civilized world have only one option when financing a house, the ARM, often called a variable rate mortgage outside the United States.

In the US, we can choose between an ARM and a FRM, and because the latter offers the security of an unchanging APR with no surprises, it’s more popular.

However, there are hundreds of thousands of Americans who have benefited from taking out ARMs, so it just might be a good fit for your lifestyle and your future.

What is an ARM?

An ARM is a mortgage with an initial interest rate that lasts for a few years and then adjusts once a year after that. We’re not going to sugarcoat it for you – your interest rate (and monthly mortgage payment) will most likely go up after the ARM’s introductory period. By how much? That depends on the real estate market a few years from now, as well as the economy in general.

Fortunately for consumers, ARM rates come with a ceiling or cap, ensuring that your rate won’t spiral out of control at the end of the initial rate period. However, there are some exceptions to the rate cap guaranteed by an ARM agreement.

An ARM is more of a calculated risk than a gamble, but it can be very rewarding in the long run – or we should say – in the short run. This something we’ll have to explain later, though.

All ARMs are based on a 30-year loan term, and that’s one of the few constants in this type of home financing. The length of the initial rate, the interest rate afterward, and the value of your home are all subject to change.

The Most Common Reset Points

Let’s call the initial period during which time your introductory rate is preset the honeymoon period. The average one lasts about 5 years, but you can hammer out any deal you want, so long as the total loan period works out to exactly 30 years.

After the honeymoon period, your interest rate and monthly payment adjusts to the going rate. This is called the reset point, and it can play a big part in your ARM’s success.

For example, in what is commonly called a 7/1 ARM, your interest rate is preset for seven years, then adjusts once a year for the next 23 years, for a total of 30 years. Similarly:

  • In a 3/1 ARM, the APR is set for three years, then adjusts every year for the next 27 years.
  • In a 5/1 ARM, the APR is set for five years, then adjusts every year for the next 25 years.
  • In a 10/1 ARM, the APR is set for ten years, then adjusts every year for the next 20 years.

Which option to choose (if your lender offers you a choice) depends on how long you plan to live in the home and what you perceive your income will be in the near future.

ARMs vs. Fixed-Rate Mortgages

Some home buyers use an adjustable-rate mortgage to get a lower initial mortgage rate and aggressively pay down principal with extra payments, but many well intending people who try to do that find ways to spend the extra money each month and make the minimum monthly payments.

Based on average 2014 mortgages, Bankrate.com reports that mortgage rates were 4.5% for 30-year fixed-rate mortgages and 3.3% for the first five years of a 5/1 ARM. This amounts to monthly payments of $1,000 on a $200,000 mortgage with the 30-year fixed-rate (including principal and interest). Compare this to $875 a month for the honeymoon period of the 5/1 ARM.

The ARM initially saves you $125 a month, or it allows you to borrow more money. Which mortgage arrangement is best for you depends on many variables, and while you can try and search the web for the answer, some advertised rates differ from offered rates.

There’s only one way to test the waters. Sit down and talk to at least two different lenders. They will be happy to look at your situation and explain the process and your options.

PROS and CONS:

Who Are They Good For?

ARMs are good for people who are adventurous and optimistic. These people are either young or young at heart. After all, ARMs are definitely not for the faint-hearted.

If you’re happy-go-lucky and you can roll with the punches, an ARM can put you into a bigger house than a 30-year fixed-rate mortgage. It also helps if you foresee a windfall of money down the road a little, like a business venture that will pay off soon or a guaranteed promotion in the coming months.

Yes, the rates after your initial fixed period can be jaw-dropping, but hey, you’ve got the coolest house on the block, it’s near an unbelievably high-rated school, and it has a smart garage door opener.

Besides, if the interest rates happen to drop (like you’re gambling they will), you’re all set. You’re as snug as a bug in a rug, my friend. You can just look out your window and see your fixed-rate neighbors scrambling like madmen to refinance their mortgages.

Who Are They Bad For?

ARMs are bad for worrywarts. You can worry about the future of the economy as much as you want, but you can’t change it. If you like security and the ability to settle into a comfortable routine with no surprises, or if your idea of taking a major financial gamble with your money is changing the background design on your checks, an ARM is not recommended.

If you plan to live in your house for all or most of the 30-year period of a fixed-rate mortgage or if you’re on a fixed income, an ARM is to be avoided at all costs. As mentioned, the likelihood that your interest rate will go down after the initial fixed period is slim, so you would need to be comfortable with that eventuality.

Heed the advice of those who have come before you; think twice before you commit to an ARM simply for the fleeting thrill of being able to buy a nicer home. An ARM is a long-term commitment where you may be unsure of what you’re getting into.

While there are caps in place for your monthly payments and overall rate increases, there are usually no caps or limits to how much the first adjustment after the reset point will be. Watch out for that first step – it’s a killer!

Interest-Only Loans

Interest-only (IO) loans are typically ARMs where the borrower only pays the interest against the loan, but does not pay down on the principal unless they decide to pay extra. Some loans are structured to pay interest-only for the first 5 or 10 years then shift to amortizing loans where the borrower begins to pay down the principal.

The benefits risks of this loan format are similar to those of other ARMs, only more leveraged – since the borrower is not paying on principal. An (IO) loan allows one to:

  • buy a bigger house;
  • have a lower set payment allow larger payments when convienent to better manage lumpy cashflow;
  • invest the difference between a regular mortgage payment and the IO loan in other higher yielding options

The drawbacks of a IO loan are:

  • they typically come with higher interest rates;
  • since they don’t build equity (unless you pay extra) they don’t shield you from changes in either home prices or interest rates, making it far easier to go underwater on your loan

Adjustable Rate Mortgage loans (ARM loans) #mortgage #rate #calculator #with #taxes


#what is an adjustable rate mortgage

#

Adjustable Rate Mortgage loans (ARM loans) | HSBC

Make your mortgage fit your budget with an adjustable rate mortgage 1

  • Adjustable monthly payments
    With an adjustable rate mortgage (ARM), your monthly payment may change over time.
  • Start with a lower rate
    ARMs typically offer a lower initial rate during the first 5, 7 or 10 years of the mortgage.
  • Get a lower rate if interest rates drop
    If interest rates drop in the future, your monthly payments may also decrease.
  • Mortgage calculators
    To help you find the right mortgage, use one of our helpful calculators .

To get started or learn more, request a callback. visit a branch or call 866.731.4722.

For more information regarding nontraditional products and features such as Interest Only and Home Equity Loans click here *.

1 Interest rate may increase per the terms stated in your adjustable rate note.

Mortgage and home equity products offered in the U.S. by HSBC Bank USA, N.A. and are only available for property located in the U.S. Subject to credit approval. Borrowers must meet program qualifications. Programs are subject to change. Geographic and other restrictions may apply. Discounts can be cancelled or are subject to change at any time and cannot be combined with any other offer or discount.

* Viewing PDF files require the use of Adobe Acrobat Reader. If you do not already have Adobe Acrobat Reader, you can download it online. After downloading the software, follow the instructions for installing the program. If you prefer, you can always download the files now and open them offline later.

To download the Reader to your computer, click the Adobe button.