Adjustable Rate Mortgage (ARM)
The traditional fixed-rate mortgage is not the only way to go when you’re looking to buy a home. Adjustable-rate mortgages (ARMs) may offer a lower initial interest rate and are a popular option in home financing. ARM loans start with a fixed payment period, after which interest rates are adjusted once a year. This means your house payment may go up or down with each adjustment.
This arrangement works well for people who plan to sell their home or refinance before the fixed-rate portion of their ARM expires. When you’re looking for the ideal mortgage here in Chambersburg or nearby areas of Franklin County, the adjustable-rate mortgage can be an excellent option to save money while financing your new home.
Basics of the ARM (Adjustable-Rate Mortgage)
With an ARM home loan, you’ll have a period of fixed monthly house payments that could last up to 10 years—or you could opt for an ARM loan with only 6 months of fixed payments. Your adjustable-rate mortgage typically comes with a lower interest rate compared to loans that have fixed payments throughout the entire loan, such as the 15-year fixed-rate home loan.
When the initial fixed rate ends on your adjustable mortgage, payments are adjusted in relation to the current interest rate index, as well as specific terms in your loan contract. (This rate is a benchmark rate chosen by your mortgage lender.) ARM loans are usually made for a 30-year term in total.
Could the Adjustable-Rate Mortgage Suit Your Needs?
This loan is often chosen by homebuyers who are planning to live in the home for a relatively short time period. If you expect your living location preference, job location, or family size to change in a few years from now, you may have a move (and home sale) in your near-future plans. This means you enjoy the advantage of a lower interest rate during the initial fixed period of time, and then sell your home before the interest rate changes. Alternatively, if you’re expecting your income to increase before or near the time when your first payment adjustment occurs, you could use the ARM loan for a long-term home purchase.
Your expected income increases might come from a promotion or career advancement bringing a higher future salary, an inheritance, or a second income-earner joining your household. With the larger income, a potentially higher adjusted loan rate won’t have much effect on your budget. You could also choose to refinance to a new mortgage before your fixed-rate period expires.
Examples of Adjustable-Rate Home Mortgage Options
The usual length of the ARM mortgage is 30 years, with adjustments set to occur after the first 3 years in a 3/1 ARM loan. For the rest of the loan term (up to 27 years), or until you decide to sell/refinance the house, the interest rate may be adjusted once per year. This means that your monthly payment amount will go up or down each year. The fixed-rate periods generally available are 3, 5, 7, and 10 years, with the adjustments occurring each year after that. Annual mortgage rate adjustments continue through the end of the 30-year term, or until you sell or refinance the home.
Applying for Your Adjustable-Rate Mortgage
The home loan experts at Homespire Mortgage are ready to help you determine if the adjustable-rate mortgage is right for you. Whether you’re looking for a home in Chambersburg or the surrounding boroughs including Fayetteville, PA, Greencastle, PA, Mercersburg, PA, Mont Alto, PA, Shippensburg, PA, and Waynesboro, PA, you can count on the Homespire team for the latest details on home financing options.