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The adjustable rate mortgage (ARM) recap.

Put simply – an adjustable rate mortgage or ARM is a loan with an interest rate that can change. When the loan begins, the interest rate is fixed. For example, a 5/1 ARM loan has a fixed interest rate for the first five years. After five years, the loan is reviewed and the rate may change once each year for the remaining loan term. ARMs may begin with lower monthly payments but remember, these payments may go up, or go down over the remainder of the loan. Your monthly payment is based on the interest rate, loan balance and length of the loan.

How does an ARM work?

  • The payment on an adjustable rate mortgage can change on the anniversary of your loan and every 12 months after the initial lock period.
  • Your interest rate cannot increase or decrease more than 2% at each adjustment and your interest rate cannot increase or decrease more than 6% over the life of the loan.

Here’s who benefits from an adjustable rate mortgage:

  • First-time home buyers – the ARM allows easy access to people who may not be able to finance a 30 year fixed rate mortgage.
  • The young, more mobile home buyer – Whether you’re starting a family soon, or advancing in your career and may need to move to another city, you’ll benefit from the lower introductory interest rates of an ARM. These are great mortgages if you’re looking to buy a starter home!
  • Short-term homeowners – if you don’t see yourself living in the same house for more than 5-7 years, an ARM makes more sense than a 30 year fixed rate mortgage.
  • People who see their income increasing are prime candidates for this type of mortgage since many people refinance before the interest rate has time to adjust.

Still wondering whether an adjustable rate mortgage is the right choice for you? Don’t worry – visit your local Heritage branch or contact your loan officer today!

Want more information on the difference between ARM and fixed rate mortgages? Read our article:

The $1000 Decision: ARM vs. Fixed Rate Mortgage >

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