LOAN OPTIONS

ARM Loans

ARM Loans

ARM Loans are adjustable loans and can be matched with any type of loan (FHA, Conventional, etc.). Typically, ARM rates will start lower than a traditional 30-year fixed, but will run the risk of change over time.

There is a perception that your interest rates (and payments) will fluctuate if you are getting ARM loans, but in actuality you can lock in the rate, and payment, for a period of time. For example, you can get 7- year ARM loan and it will remain locked for 7 years before it is eligible for adjustments. It will then adjust depending on the market interest rate, so it can either go down or up. Usually, banks will set a cap on interest rate which will help you to set expectations on how much your payment can go up or down over time.

When you see the following while shopping for ARMS rates 7/1/2, it means that your loan is locked for 7 years and then adjusts every year but can’t go higher or down by more than 2%.

ARM Loans are a good option for someone who doesn’t plan on living in the property for a long time. They are also useful if the interest rates are high at the time of getting a mortgage and rates are anticipated to fall in the future.

Features of ARM loans:

– Lower interest rates than for fixed rate loans
– More difficult to understand for the borrowers as the bank has more flexibility to adjust the margins, caps and other financial figures which might get confusing for the borrower

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