Adjustable Rate Mortgage

An adjustable rate mortgage, or “ARM”, generally offers a lower initial interest rate than most fixed rate loans.

Your interest rate can change periodically, usually in relation to an index. Your monthly payment will go up or down accordingly. For many people an ARM is the right mortgage choice, particularly if your income is likely to increase in the future or if you only plan on being in the home for a limited time period.

Here’s some detailed information explaining how ARMs work.

Adjustment Period
With most ARMs, the interest rate and monthly payment are fixed for an initial time period. Usually this can be one year, three years, five years, seven years, or even ten years. After the initial fixed period, the interest rate can change every year. For example, one of our most popular adjustable rate mortgages is a five-year ARM. The interest rate will not change for the first five years (the initial adjustment period) but can change every year after the first five years.

Index
Our ARM interest rate changes are tied to changes in an index rate. Using an index to determine future rate adjustments provides you with assurance that rate adjustments will be based on actual market conditions at the time of the adjustment. Many indices are published weekly in the Wall Street Journal. They can be found on-line or you can ask one of mortgage lenders for the current index. If the index rate moves up so does your mortgage interest rate.This will probably increase your monthly payment. However, if the index rate goes down your monthly payment may decrease.

Margin
To determine the interest rate on an ARM, we’ll add a pre-disclosed amount to the index called the “margin.” If you’re still shopping, comparing one lender’s margin to another’s can be more important than comparing the initial interest rate, since it will be used to calculate the interest rate you will pay in the future.

Interest-Rate Caps
Interest-rate caps limit the amount your interest rate can increase or decrease. There are two types of caps:

1. Periodic or adjustment caps, which limit the interest rate increase or decrease from one adjustment period to the next.

2. Overall or lifetime caps, which limit the interest rate increase over the life of the loan.

As you can imagine, interest rate caps are very important since no one knows what can happen in the future. All of the ARMs we offer have both adjustment and lifetime caps. Please see each product description for full details.

Interest Rate Floors
Certain loans may have interest rate floors. Your rate will not go below this point at future rate adjustments.

Contact a Loan Officer
Selecting a mortgage may be the most important financial decision you will make.It’s important you have all the information needed to make the right decision. Don’t hesitate to contact a Loan Officer if you have questions about the features of our adjustable rate mortgages.