|
徐天媺 May Xu
|
新泽西州华人贷款专员 New Jersey Chinese Loan officer |
|
(201) 710-7986
[email protected] |
Senior Mortgage Officer
Mortgage Lending Direct, Inc. NMLS # 588977 |
The Complete Guide to ARM Loans - 3, 5, 7 & 10 Year
What Is an ARM? An adjustable-rate mortgage, or ARM, has an introductory interest rate that lasts a set period of time and adjusts annually thereafter for the remaining time period for a total of 30 years. After the set time period your interest rate will change and so will your monthly payment. The monthly payment amount is usually subject to a cap.
Example:7/1 ARM: Your interest rate is set for 7 years then adjusts for 23 years.
General Advantage and Disadvantages
The initial interest rates for ARMs are normally lower than a fixed rate, which in turn means your monthly payment is lower. If you only plan to stay in your home for a short period of time, an ARM might be advantageous to you because you plan on moving or selling your home before your initial mortgage rate adjusts. If you expect your income to increase in the future, you might feel comfortable with the idea of saving money now by having a lower monthly payment but be comfortable with having to make higher payments in the future when your income rises and your ARM adjusts.
ARMs are generally considered riskier because your interest rate will probably go up after the initial fixed-rate period ends.
How Happens When My ARM Adjusts?
You can determine how much your ARM's interest rate is going to increase or decrease after the initial fixed-rate period ends based upon the index and margin it is tied to. The index value is variable while the margin value is constant throughout the lifetime of the loan.
An index is a benchmark variable interest rate that is published regularly and available publicly. Typical index rates that are associated with ARMs are LIBOR (London Interbank Offered Rate), COFI (11 District Cost of Funds), and CMT (Constant MaturityTreasury), etc. A margin is a fixed percentage rate that you add to your index rate to obtain the fully indexed rate for an adjustable-rate mortgage. Margin rates can often be negotiated with your lender.—source from <Zillow.com>
Example:7/1 ARM: Your interest rate is set for 7 years then adjusts for 23 years.
General Advantage and Disadvantages
The initial interest rates for ARMs are normally lower than a fixed rate, which in turn means your monthly payment is lower. If you only plan to stay in your home for a short period of time, an ARM might be advantageous to you because you plan on moving or selling your home before your initial mortgage rate adjusts. If you expect your income to increase in the future, you might feel comfortable with the idea of saving money now by having a lower monthly payment but be comfortable with having to make higher payments in the future when your income rises and your ARM adjusts.
ARMs are generally considered riskier because your interest rate will probably go up after the initial fixed-rate period ends.
How Happens When My ARM Adjusts?
You can determine how much your ARM's interest rate is going to increase or decrease after the initial fixed-rate period ends based upon the index and margin it is tied to. The index value is variable while the margin value is constant throughout the lifetime of the loan.
An index is a benchmark variable interest rate that is published regularly and available publicly. Typical index rates that are associated with ARMs are LIBOR (London Interbank Offered Rate), COFI (11 District Cost of Funds), and CMT (Constant MaturityTreasury), etc. A margin is a fixed percentage rate that you add to your index rate to obtain the fully indexed rate for an adjustable-rate mortgage. Margin rates can often be negotiated with your lender.—source from <Zillow.com>