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.


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)

Workers Credit Union Mortgage Housing Loan, adjustable rate mortgage.#Adjustable #rate #mortgage


Mortgages

AND THE SMILE YOU HAVE ALL THE WAY UP TO CLOSING DAY.

Adjustable rate mortgage

All Workers Mortgage loans and products are included in the GiveBack Program.

Adjustable rate mortgage

First Time Homebuyer Mortgage Loan

Buying your first home is a big investment, Workers offers low rates for first time homebuyer mortgages and even reduced closing cost options. Our professional mortgage lenders will help you find a financing options that fits your needs.

  • Get pre-approval before house hunting
  • First-time homebuyer loan programs including FHA* USDA*
  • Mortgages loans with fixed and variable rates
  • VA Mortgage loans* for current and past military personnel
  • Jumbo mortgage loans for amounts greater than $425,000
  • Reduced Cost Closing Option
  • HomeAdvantage TM to earn rebates
  • Free home appraisal credit at closing

Call 978-345-1021 ext. 5403 to speak with a Workers mortgage lender today.

*VA, FHA USDA Mortgages are not included in the GiveBack Program.

Construction Loans

If you are building your new home, speak with a Mortgage Professional about a Workers Construction Loan.

  • Fixed, 7/1, and 10/1 Adjustable Rate Mortgage options
  • Lend up to 80% of the sum of the construction cost and purchase price/value of land
  • Maximum 30-years after completion of the construction period
  • Nine month construction period
  • Construction loans are for owner-occupied residence properties

Call 978-345-1021 ext. 5403 to speak with a mortgage lender today or email us.

*Adjustable Rate Mortgage (ARM) rates effective as of for purchase and refinance of 1-4 family owner-occupied properties. A 5-year term with an interest rate of 3.500% and an Annual Percentage Rate (APR) of 3.992% is based on a $100,000 loan at 75% Loan-To-Value (LTV) at a cost of $4.08 per $1,000 borrowed. Caps 2% per adjustment and 6% over the lifetime of the loan. Index is 1-yr Treasury Bill. Margin is 2.50%. Maximum loan amount of $2,000,000 at an 80% LTV. For complete details, please contact Workers Credit Union. Workers Credit Union membership required, simply open a $5 membership account and you ll be a member!

Jumbo Mortgage

30-YEAR FIXED RATE

A Jumbo Mortgage loan is a home loan greater than $425,000.

They are available with 15, 20 and 30-year terms, as well as 5/1 and 7/1 Adjustable Rate Mortgages.

  • Online Pre-approval or Pre-qualification
  • Purchase or refinance your mortgage
  • Expert Mortgage Originators, including one in our Call Center
  • HomeAdvantage TM to earn rebates

Call 978-345-1021 ext. 5403 to speak with a Workers mortgage lender today.

*All Annual Percentage Rates (APRs) are based on $480,000 loan to purchase a single family primary residence at an 75% Loan-To-Value (LTV) and a FICO Score of 740 or greater unless otherwise noted. Jumbo mortgage limits: 1 family $2,000,000 at 80% LTV. Lesser loan limits apply on LTVs greater than 80%.

Mortgage Refinancing

Refinancing your mortgage involves paying off your current home loan and replacing it with a new one. The mortgage professionals at Workers can walk you through all your options for mortgages refinancing.

Benefits of a Workers mortgage refinance:

  • Reduce your monthly payments
  • Refinance your adjustable-rate to a fixed-rate
  • Shorten your loan terms to pay off your mortgage faster
  • Use your home s equity for large home improvement projects

Refinancing costs:

  • Appraisal fees
  • Closing/attorney fees
  • Recording fees
  • Credit reports
  • Underwriting fees
  • Private mortgage insurance
  • Loan origination fees

To find out about refinancing your mortgage is right for you visit our Online Loan Consultant, contact a Workers mortgage lender at 978-345-1021 ext. 5403 or email us.

Finish Line Refi Mortgage

7-YEAR FIXED RATE

AS LOW AS – 3.50% APR 1

10-YEAR FIXED RATE

AS LOW AS – 3.75% APR

12-YEAR FIXED RATE

AS LOW AS – 3.99% APR

A Workers Finish Line Refinancing mortgage is for those who are looking at retiring soon or want to pay off their home loan.

  • No closing cost
  • $399 non-refundable application fee
  • Fast approval process and closing
  • Other refinancing rates for a Workers mortgage are available

Call 978-345-1021 ext. 5403 to speak with a Workers mortgage lender today.

1. The Annual Percentage Rate (APR)is fixed, effective as of and includes a 0.50% discount with electronic loan payments from a Workers Credit Union checking account. APRs are subject to change at any time. A 7-year term with an interest rate of 3.50% ;is repayable in 84 monthly installments of $13.44 per $1,000 borrowed. 2. A 10-year term with an interest rate of 3.75% is repayable in 120 payments of $10.01 per $1,000 borrowed.A 12-year term with an interest rate of 3.99% is repayable in 144 payments of $8.75 per $1,000 borrowed. Minimum loan amount $50,000. Minimum term of Finish Line Refi is five years, or 60 months and maximum term is twelve years, or 144 months. Borrower is responsible for property insurance and any cost or fees required by their current lender to have the loan refinanced with Workers Credit Union. Maximum loan amount not to exceed 80% of property value for the refinance of a single family owner occupied primary residence and not exceed 75% of property value for an owner occupied second home residence. The program is available only for refinances only of single-family, owner occupied residences and is not available to refinance current Finish Line Refi loans. Requires active direct deposit into a Workers checking account within 60 days of Finish Line closing. Workers Credit Union membership required. Open a $5 savings account when you close your loan and you will be a member. Other restrictions may apply.

Adjustable Rate Mortgage

5/1 Adjustable Rate Mortgage*

3.500% RATE 3.992% APR**

A 30-year term adjustable rate mortgage can give you more options when trying to finance your home. Starting with a lower interest rate on a housing loan can open more doors.

This is the ideal mortgage if you:

  • Want to maximize your buying options for a mortgage
  • Have lower payments during the first few years of your mortgage
  • Plan to move within or pay-off within the next ten years
  • 7/1 and 10/1 ARMs are also available.
  • HomeAdvantage TM to earn rebates

Call 978-345-1021 ext. 5403 to speak with a Workers mortgage lender today.

*Adjustable Rate Mortgage (ARM) rates effective as of for purchase and refinance of 1-4 family owner-occupied properties in Massachusetts only. **A 5-year term with an interest rate of 3.500% and an Annual Percentage Rate (APR) of 3.992% is based on a $100,000 loan at 75% Loan-To-Value (LTV) at a cost of $4.08 per $1,000 borrowed. 5/1 ARM available single family owner-occupied property in Massachusetts. 7/1 and 10/1 ARM rates are available for construction loans. Rates on ARMS may increase after closing at applicable adjustment term. Caps 2% per adjustment and 6% over the lifetime of the loan. Index is 1-yr Treasury Bill. Margin is 2.50%. Maximum loan amount of $2,000,000 at an 80% LTV. For complete details, please contact Workers Credit Union. Workers Credit Union membership required, simply open a $5 membership account and you ll be a member!


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.


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


15/15 Jumbo Adjustable Rate Mortgage

Get great value without the risk. Feel secure with a plan that changes just once, after 15 years.

Apply before becoming a member.

After your application, we’ll help you:

1. Discover you’re eligible to become a PenFed member

2. Open a Savings/Share Account and deposit at least $5

OUR GREAT RATES

*Payments shown do not include taxes or insurance, actual payments may be greater. Rates and offers are in effect as of for new applications only, for a limited time, and subject to change without notice. Example based on $ loan. Other restrictions apply. Rate is variable and can increase by no more than 6 percentage points every 15 years ( % for this example). Since the index in the future is unknown, the First Adjustment Payments displayed are based on the current index plus margin (fully indexed rate) as of the date above.

Features Benefits

  • Lower initial monthly payment
  • High loan limits (over $424,100)
  • Free 60 day rate lock
  • Eligible for PenFed Real Estate Rewards
  • For home purchases or refinancing
  • Available for loans greater than $ up to $2 million
  • For the first 15 year term the interest rate and initial payments are generally lower than those of a comparable 30-year fixed rate loan
  • Offers available on primary and secondary homes

What is an adjustable rate mortgage

REAL ESTATE REWARDS

Save 1.5% of your loan amount – up to $10,000 – when buying your next home.

Disclosures

Investment properties not eligible for offers.

All Adjustable Rate Mortgage Programs: The application of additional loan level pricing adjustments will be determined by various loan attributes to include but not limited to the loan-to-value (LTV) ratio, credit score, transaction type, property type, product type, occupancy, and subordinate financing.

15/15 ARM: Available on purchases and refinances. Not available for applications without a property address (pre-purchase). The initial rate is fixed for 15 years (180 months). When the rate adjusts, your new rate will be the then current index (weekly average yield on US Treasury securities adjusted to a constant maturity of 10 years) plus a margin of two percent (2.000%) rounding to the nearest one-eighth (0.125%). The new rate cannot exceed percent ( .000%) above the initial rate or cannot be lower than the floor rate of percent ( .000%).

Jumbo Mortgages: For loan amounts above $ to $ . The maximum loan-to-value (LTV) is 80% and the maximum combined loan-to-value (CLTV) is 90%. The maximum LTV and CLTV for condominiums is 80%.

For purchase applications, please submit a copy of your fully signed ratified purchase agreement to [email protected] in a timely manner to ensure PenFed can meet your closing date.

The applicant is responsible for the following fees and costs at the time of closing. Origination fee, appraisal fee, tax service fee, CLO access fee, title fees, transfer tax fees, credit report fee, flood cert fee, recording fee, survey if required and work verification fee, escrow reserves and interest due until first payment, other cost may be included due to program specific circumstances. This is not intended to be an all-inclusive list.

Escrows may be waived if LTV is 80% or less in all states.

Additional reserve requirements may apply.

If you withdraw an application that was locked and reapply within 30 days, the new application is subject to worst case pricing.

All above disclosures apply to non-Veteran’s Administration (VA) loans. VA loans have different guidelines and eligibility requirements.

All rates and offers are in effect as of , offered for a limited time and subject to change without notice. Other restrictions may apply. Contact your PenFed mortgage consultant for any applicable additional restrictions and details about your loan. To receive any advertised product you must become a member of PenFed by opening a share (savings) account. Federally insured by the NCUA.

We do business in accordance with the Federal Fair Housing Law and the Equal Credit Opportunity Act.

ARM vs Fixed Rate Mortgages: Which One Should You Choose?

What is an adjustable rate mortgage

With mortgage interest rates at an all-time low you’re probably thinking about finally taking the big leap and becoming a homeowner or refinancing your existing home to a lower interest rate. However, the age-old question looms in front of you…which mortgage should I choose, an ARM or a fixed-rate mortgage?

The answer: it depends on your needs. While there are pros and cons to both mortgages, the real question is not which mortgage is better, but which mortgage will suit my needs.

Let’s take a look at both an ARM and fixed-rate mortgage and then you can decide which option is going to afford you your dream home or that tantalizing interest rate that will have you running to refinance your home.

Adjustable-Rate Mortgages

Adjustable-rate mortgages or ARMs have interest rates that adjust over a period of time. ARMs have had a notoriously bad reputation because of the mortgage meltdown and subsequent recession.

While this reputation was justified in the past, most of those exotic ARMs no longer exist. Today, financial institutions offer hybrid ARMs—like PenFed’s 5/5 ARM, which has a fixed-rate for five years and then the rate adjusts once every five years. This is a unique mortgage product as most ARMs adjust annually after the initial fixed terms.

The thought of an adjustable interest rate probably has you fearing skyrocketing monthly mortgage payments. Fear not, all ARMs have caps—a limit on the amount the interest rate can adjust—and ceilings—the highest the interest rate is allowed to become during the life of the loan. Using PenFed’s 5/5 ARM as an example, the initial interest rate will change every five years by no more than two percentage points up or down (the cap). This rate will never exceed five percentage points above the initial rate (the ceiling).

Fixed-Rate Mortgages

A fixed-rate mortgage provides a reliable and fixed monthly payment for the life of the loan. Because your total mortgage payment remains stable from month to month, homeowners can easily budget their monthly expenses.

Financial institutions offer various fixed-rate mortgages including the more common fixed-rate mortgages: 15, 20, and 30-year. Out of the three the 30-year fixed is the most popular mortgage because it usually offers the lowest monthly payment. However, the lower monthly payment comes at a cost of paying more in interest over the life of the loan.

Some Considerations

So, now that you know a little more about ARMs and fixed-rate mortgages here are a few things you should consider when making a decision about which mortgage will best suit your needs:

  • How long do you plan to stay in your home? If you don’t plan to stay in your home for the long haul, you may want to consider an ARM, which has a lower interest rate than the 30-year fixed and you save big money in interest charges. If you move or refinance within five years before the interest rate adjusts you can avoid a payment hike. Conversely, if you’ve found or are already in the home of your dreams, a fixed-rate mortgage makes more sense and will provide you stable payments for years to come.
  • What can you afford? Knowing how much you can afford to pay month to month in mortgage payments will also help you decide between an ARM or fixed-rate mortgage. If you’re working within a tight budget, the ARM may be a more attractive option since the payments will be lower than a 30-year fixed. But, unless you anticipate a raise or another source of added income, ask yourself if you’ll be able to afford your mortgage payment when the ARM’s interest rate increases. If not, don’t take the risk. Go with the fixed-rate mortgage and get stable monthly payments.

The Takeaway: When it’s all said and done, the goal is to get you into the home of your dreams or refinance your existing home without breaking your pockets. Both the ARM and fixed-rate mortgage are products that will help you reach your goal. However, the path you take to get to your goal depends on which mortgage will suit your needs.

What is an adjustable rate mortgage

The credit union is federally insured by the National Credit Union Association.


How Much Money Can I Save Using an Adjustable-Rate Mortgage, adjustable rate mortgage.#Adjustable #rate #mortgage


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:

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.


Workers Credit Union Mortgage Housing Loan, adjustable rate mortgage.#Adjustable #rate #mortgage


Mortgages

AND THE SMILE YOU HAVE ALL THE WAY UP TO CLOSING DAY.

Adjustable rate mortgage

All Workers Mortgage loans and products are included in the GiveBack Program.

Adjustable rate mortgage

First Time Homebuyer Mortgage Loan

Buying your first home is a big investment, Workers offers low rates for first time homebuyer mortgages and even reduced closing cost options. Our professional mortgage lenders will help you find a financing options that fits your needs.

  • Get pre-approval before house hunting
  • First-time homebuyer loan programs including FHA* USDA*
  • Mortgages loans with fixed and variable rates
  • VA Mortgage loans* for current and past military personnel
  • Jumbo mortgage loans for amounts greater than $425,000
  • Reduced Cost Closing Option
  • HomeAdvantage TM to earn rebates
  • Free home appraisal credit at closing

Call 978-345-1021 ext. 5403 to speak with a Workers mortgage lender today.

*VA, FHA USDA Mortgages are not included in the GiveBack Program.

Construction Loans

If you are building your new home, speak with a Mortgage Professional about a Workers Construction Loan.

  • Fixed, 7/1, and 10/1 Adjustable Rate Mortgage options
  • Lend up to 80% of the sum of the construction cost and purchase price/value of land
  • Maximum 30-years after completion of the construction period
  • Nine month construction period
  • Construction loans are for owner-occupied residence properties

Call 978-345-1021 ext. 5403 to speak with a mortgage lender today or email us.

*Adjustable Rate Mortgage (ARM) rates effective as of for purchase and refinance of 1-4 family owner-occupied properties. A 5-year term with an interest rate of 3.500% and an Annual Percentage Rate (APR) of 3.992% is based on a $100,000 loan at 75% Loan-To-Value (LTV) at a cost of $4.08 per $1,000 borrowed. Caps 2% per adjustment and 6% over the lifetime of the loan. Index is 1-yr Treasury Bill. Margin is 2.50%. Maximum loan amount of $2,000,000 at an 80% LTV. For complete details, please contact Workers Credit Union. Workers Credit Union membership required, simply open a $5 membership account and you ll be a member!

Jumbo Mortgage

30-YEAR FIXED RATE

A Jumbo Mortgage loan is a home loan greater than $425,000.

They are available with 15, 20 and 30-year terms, as well as 5/1 and 7/1 Adjustable Rate Mortgages.

  • Online Pre-approval or Pre-qualification
  • Purchase or refinance your mortgage
  • Expert Mortgage Originators, including one in our Call Center
  • HomeAdvantage TM to earn rebates

Call 978-345-1021 ext. 5403 to speak with a Workers mortgage lender today.

*All Annual Percentage Rates (APRs) are based on $480,000 loan to purchase a single family primary residence at an 75% Loan-To-Value (LTV) and a FICO Score of 740 or greater unless otherwise noted. Jumbo mortgage limits: 1 family $2,000,000 at 80% LTV. Lesser loan limits apply on LTVs greater than 80%.

Mortgage Refinancing

Refinancing your mortgage involves paying off your current home loan and replacing it with a new one. The mortgage professionals at Workers can walk you through all your options for mortgages refinancing.

Benefits of a Workers mortgage refinance:

  • Reduce your monthly payments
  • Refinance your adjustable-rate to a fixed-rate
  • Shorten your loan terms to pay off your mortgage faster
  • Use your home s equity for large home improvement projects

Refinancing costs:

  • Appraisal fees
  • Closing/attorney fees
  • Recording fees
  • Credit reports
  • Underwriting fees
  • Private mortgage insurance
  • Loan origination fees

To find out about refinancing your mortgage is right for you visit our Online Loan Consultant, contact a Workers mortgage lender at 978-345-1021 ext. 5403 or email us.

Finish Line Refi Mortgage

7-YEAR FIXED RATE

AS LOW AS – 3.50% APR 1

10-YEAR FIXED RATE

AS LOW AS – 3.75% APR

12-YEAR FIXED RATE

AS LOW AS – 3.99% APR

A Workers Finish Line Refinancing mortgage is for those who are looking at retiring soon or want to pay off their home loan.

  • No closing cost
  • $399 non-refundable application fee
  • Fast approval process and closing
  • Other refinancing rates for a Workers mortgage are available

Call 978-345-1021 ext. 5403 to speak with a Workers mortgage lender today.

1. The Annual Percentage Rate (APR)is fixed, effective as of and includes a 0.50% discount with electronic loan payments from a Workers Credit Union checking account. APRs are subject to change at any time. A 7-year term with an interest rate of 3.50% ;is repayable in 84 monthly installments of $13.44 per $1,000 borrowed. 2. A 10-year term with an interest rate of 3.75% is repayable in 120 payments of $10.01 per $1,000 borrowed.A 12-year term with an interest rate of 3.99% is repayable in 144 payments of $8.75 per $1,000 borrowed. Minimum loan amount $50,000. Minimum term of Finish Line Refi is five years, or 60 months and maximum term is twelve years, or 144 months. Borrower is responsible for property insurance and any cost or fees required by their current lender to have the loan refinanced with Workers Credit Union. Maximum loan amount not to exceed 80% of property value for the refinance of a single family owner occupied primary residence and not exceed 75% of property value for an owner occupied second home residence. The program is available only for refinances only of single-family, owner occupied residences and is not available to refinance current Finish Line Refi loans. Requires active direct deposit into a Workers checking account within 60 days of Finish Line closing. Workers Credit Union membership required. Open a $5 savings account when you close your loan and you will be a member. Other restrictions may apply.

Adjustable Rate Mortgage

5/1 Adjustable Rate Mortgage*

3.500% RATE 3.992% APR**

A 30-year term adjustable rate mortgage can give you more options when trying to finance your home. Starting with a lower interest rate on a housing loan can open more doors.

This is the ideal mortgage if you:

  • Want to maximize your buying options for a mortgage
  • Have lower payments during the first few years of your mortgage
  • Plan to move within or pay-off within the next ten years
  • 7/1 and 10/1 ARMs are also available.
  • HomeAdvantage TM to earn rebates

Call 978-345-1021 ext. 5403 to speak with a Workers mortgage lender today.

*Adjustable Rate Mortgage (ARM) rates effective as of for purchase and refinance of 1-4 family owner-occupied properties in Massachusetts only. **A 5-year term with an interest rate of 3.500% and an Annual Percentage Rate (APR) of 3.992% is based on a $100,000 loan at 75% Loan-To-Value (LTV) at a cost of $4.08 per $1,000 borrowed. 5/1 ARM available single family owner-occupied property in Massachusetts. 7/1 and 10/1 ARM rates are available for construction loans. Rates on ARMS may increase after closing at applicable adjustment term. Caps 2% per adjustment and 6% over the lifetime of the loan. Index is 1-yr Treasury Bill. Margin is 2.50%. Maximum loan amount of $2,000,000 at an 80% LTV. For complete details, please contact Workers Credit Union. Workers Credit Union membership required, simply open a $5 membership account and you ll be a member!


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.


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


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.

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.