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What’s an adjustable-rate mortgage?
An adjustable-rate mortgage (ARM) is a 30-year home loan with an initial fixed-rate period, typically 3 to 10 years. The interest rate may change on an annual basis once the fixed portion of the loan expires. For example, with a 5/1 ARM loan, your interest rate would be fixed for 5 years, and could fluctuate up or down each subsequent year for the next 25 years.
ARM loans typically feature lower rates and monthly payments than comparable fixed-rate loans during the initial rate period, but rates could increase once the initial rate expires. While many home buyers prefer the security of a fixed-rate mortgage, an ARM can be a good choice, too – especially if you know you’ll be moving within the next few years.
If you understand the risk of rate fluctuation after the initial rate period, an ARM can be a good option.
The Best Short-Term Rates
Conventional ARMs typically feature lower interest rates and APRs during the initial rate period.
Low Monthly Payments
An ARM mortgage lets you keep your monthly payments low during the initial term of your home loan, which gives you the option to pay down your mortgage faster.
Conventional ARMs are available for refinancing your existing mortgage, too.
|Requirements and Qualifications|
Conforming loans (loans that conform to Fannie Mae and Freddie Mac guidelines) are a good choice for borrowers with excellent credit
The loan amount for a conforming ARM is generally limited to $417,000 for a single-family home, though limits may be higher in regions where home prices are higher. Jumbo ARMs allow you to exceed the conforming loan limit to borrow for a higher-priced home.
Most conventional ARMs will require at least 5 percent as a down payment.