Adjustable Rate Mortgage (ARM) – The Savvy Choice!
ARMs generally provide lower rates compared to the 30YR fixed rates and are great for those who have a clear exit strategy for their home. Typical introductory fixed periods are 5, 7, and 10 years.
What ARM Options Can You Choose From?
ARMs are fixed for an initial period, usually 5, 7, or 10 years. Once that initial period ends, rates can fluctuate depending on the index tied to that loan. When trying to pick the right ARM, the key is knowing what your current exit strategy is for that home.
Things to Consider for ARM Loans
- ARM Loans are best for clients who have a set exit strategy for their home or have a general appetite for risk. When you go beyond the initial fixed period, the rate will fluctuate based on the index it’s tied to.
- ARM Loans have mechanisms that help limit the amount of rate/payment shock once the fixed term expires. Often referred to as “caps”, each ARM loan has various caps for the initial change, annual change, and lifetime change.
- The current index being used for most ARMs is the 30-Day Average Secured Overnight Financing Rate (SOFR). It’s important to keep tabs on the index for your ARM loan so you can anticipate what your payments will look like once the initial fixed rate period expires.
- If you are unsure about your future plans for the home, consider a fixed rate loan option which ensures payments stay exactly the same throughout the duration of the loan.
