adjustable rate mortgages
Flexible Financing with Adjustable-Rate Mortgages (ARMs)
An Adjustable-Rate Mortgage (ARM) offers an initial fixed interest rate for a set period—commonly 3, 5, 7, or 10 years—followed by periodic adjustments based on market indices. This structure often provides a lower starting rate compared to fixed-rate mortgages, potentially enhancing your purchasing power. ARMs are typically linked to indices such as the Secured Overnight Financing Rate (SOFR) or the 11th District Cost of Funds Index (COFI).
Down payment
Conventional ARMs typically require a minimum 5% down payment. However, options like FHA-insured ARMs may allow for a lower down payment, starting at 3.5%, accommodating a wider range of homebuyers.
Rate caps
ARMs include interest rate caps that limit how much the rate can increase during each adjustment period and over the loan’s lifetime, providing a safeguard against significant payment fluctuations.
terms
ARMs are generally amortized over 30 years, with an initial fixed-rate period—ranging from 3 to 10 years—after which the rate adjusts periodically based on the chosen index.
why an arm?
If you anticipate relocating or refinancing within a few years, an ARM can be advantageous. For instance, a 7-year ARM offers a lower fixed interest rate for seven years, aligning with short-term housing plans and potentially reducing your initial mortgage payments.
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