Beat high interest rates with Adjustable Rate Mortgages from Newfi
Get Your Free Mortgage
Rate Quote Today!
Low Interest Rate Mortgage Solutions
Get In Touch with a Newfi Senior Loan Advisor Today!
Our team of dedicated Senior Loan Advisors are here to help you find the right mortgage solution for your situation.
What is an Adjustable
Rate Mortgage (ARM)?
An ARM is a mortgage option that has an interest rate that will adjust based on the market. In the initial years of the loan, typically the first 5, 7, or 10 depending on your loan terms, ARM’s offer borrowers a low fixed interest rate. After the fixed rate period, your interest rate will adjust annually for the remainder of the mortgage based on the index rate. This rate adjustment can cause your monthly mortgage payments to change as well.
For example, a 7/1 ARM features a fixed interest rate during the first 7 years of the loan. Starting in year 8, the interest rate adjusts once a year (that’s the “1” part) after that for the remainder of the mortgage. It is important to note that there is usually a cap on the percentage that the rate can adjust annually and the total rate adjustment possible over the life of the loan.
How Does an Adjustable Rate Mortgage Work?
ARMs have interest rates that adjust depending on the movements of the market. At the end of the initial fixed period (which is 5, 7, or 10 years long, depending on the ARM you choose), the rate will adjust. This adjustment is limited by caps, which limit:
- How much the interest rate can change at each adjustment period
- How much the interest rate can change overall.
Frequently Asked Questions
What are the Benefits of an Adjustable Rate Mortgage?
- Low initial interest rate, during which rates cannot change
- Rates during the initial, fixed-rate period are usually lower than 30 year fixed rates
- Lower payments let you afford more house for a given payment, or save more for other financial goals
- Caps on interest rate adjustments put limits on total possible change in payments
- May benefit borrowers who plan to sell or refinance before the end of the initial fixed-rate period
Why are the Disadvantages of an Adjustable Rate Mortgage?
- Given current interest rates, rates are most likely to adjust upwards
- Changes in interest rates could cause your monthly mortgage payments to go up, perhaps dramatically
- If you can’t afford higher monthly payments, you may be forced to sell or refinance your home sooner than you want
- You may be able to find lower interest rates for some fixed-rate loans (like the 15 year fixed)
How Does an ARM Compare to a Fixed Rate Mortgage?
A Fixed Rate Mortgage gives you the security of knowing you have one fixed monthly payment for the life of your loan, regardless of interest rate movements. Rates and monthly payments may be higher, however. The most common fixed rate mortgage is the 30 year fixed; you can learn more about the 30 year fixed.
An Adjustable Rate Mortgage may have lower interest rates and thus lower monthly mortgage payments than a standard 30-year mortgage. However, you run the risk that rates and mortgage payments could go up after the initial fixed-rate period.
What Other Mortgage Options Do I Have?
- Want a low, fixed interest rate for the life of your loan? Consider a 30-Year Mortgage
- Need easier credit qualification terms? Consider an FHA Loan, FHA loan,which also permits low down payments and more flexible credit qualifications.
What is the First Step for Getting an Adjustable Rate Mortgage?
Because everyone has their own unique situation, we recommend speaking to a loan advisor about your options as your first step. Go to newfi.com/get-started or fill out the form on this page for a free consultation with one of our licensed loan advisors!
What are Current Adjustable Rate Mortgage Rates?
Your exact ARM rates depend on the interest rate you qualify for and the term you select. Contact us to review your options and calculate your new payment.