Metro Brokers Financial

Adjustable-Rate Mortgages

If you plan on being in your home for a shorter period of time, or expect your income to increase over the years, an Adjustable Rate Mortgage (ARM) loan may be right for you.

An ARM typically starts with a lower initial interest rate than traditional fixed rate loans. After a set payment period—anywhere from one to 10 years—the interest rate may change periodically based on market conditions. As the rate changes, so does your monthly payment.

However, ARM loans feature an adjustment "cap" that limits how much the interest rate can go up, protecting you from excessive increases in your monthly payment.

FHA Adjustable-Rate Mortgages

The 1-year FHA ARM loan is one of the best Adjustable-Rate Mortgages currently on the market. Unlike other typical ARM loans, the FHA ARM starts at a slightly higher rate. The benefit is that the first adjustment is not as large.

The yearly interest on an FHA ARM loan can increase or decrease no more than 1% per year vs. the typical 2% for other ARM loans. The lifetime cap of the FHA adjustable rate mortgage is no more than 5% over the initial start rate vs. 6% for other ARM loans.

Hybrid Adjustable-Rate Mortgages

These loans are a mix – or a hybrid – of both a fixed-rate and an adjustable-rate period. In a 3/1 ARM, for example, the interest rate is fixed for the first three years of the loan. After that, the rate adjusts on an annual basis until the loan is paid off.

The initial rate on any ARM will be lower than a fixed-rate mortgage, making payments more affordable. However, after the initial set payment period has passed, interest rates can adjust higher or lower based on market conditions. As a result, monthly mortgage payments would increase or decrease based on market conditions.

There are several different Hybrid ARMs:

  • 3/1 ARM
  • 5/1 ARM
  • 7/1 ARM
  • 10/1 ARM

All Hybrid ARMs operate in the same fashion, so a 10/1 ARM will have a fixed interest rate for the first 10 years of the loan and adjusts on an annual basis afterwards.

Metro Brokers Financial, Inc., 5775-D Glenridge Drive, Suite 200, Atlanta, Ga. 30328 A Georgia Residential Mortgage Licensee # 5892. NMLSR Unique Identifier # 163853. 404-847-2525