Adjustable Rate Mortgages (ARM)
The interest rate on an Adjustable Rate Mortgage through New Era Bank will vary based on the United States Treasury Bill index. Monthly payments may change over time due to fluctuations in that index. Usually there will be an initial period where the rate is fixed and then it will adjust. These loans are good for people who plan to move within five years.
Highlights
- Those who are planning to move or refinance within the first 5 years
- Those whose income has a high probability of increasing
- Those who need a low initial rate to qualify for their mortgage
- Those with good credit (FICO scores of 680 or higher)
Terms
- 1 Year ARM
- 2 Year ARM
- 3 Year ARM
- 5 Year ARM
1 year ARM
With this mortgage, the interest rate can change each year. Annual rate increases are limited to 2% annually or 5% for the duration of the loan. The initial rate is lower to reflect the risk that the borrower is assuming, so you may qualify for a larger mortgage amount. You will not have to refinance your mortgage if rates drop, and you could benefit from continued lower payments if rates do not rise.
2 year ARM
With this mortgage, the interest rate is fixed for two years, and then changes to a two-year adjustable rate in the third year. From there, the rate will adjust every two years for the duration of the loan. Annual rate increases are limited to 2%, and the lifetime increase is limited to 5%. Typically, the initial interest rate is higher than a one-year ARM, but lower than a fixed-rate.
3 year ARM
With this mortgage, the interest rate is fixed for three years, and then changes to a three-year adjustable rate in the fourth year. From there, the rate will adjust every three years for the duration of the loan. Annual rate increases are limited to 2%, and the lifetime increase is limited to 5%. Typically, the initial rate is higher than a one-year ARM, but lower than a fixed-rate.
5 year ARM
With this mortgage, the interest rate is fixed for the first five years and then switches to a five year adjustable rate in the sixth year. From there, the rate will adjust every five years for the duration of the loan. Annual rate increases are limited to 2%, and the lifetime increase is limited to 5%. The initial rate is usually lower than most 30- or 15-year fixed rate loans. This mortgage makes the most sense if you plan on staying in your house less than five years.
ARM tip
Annual rate changes can make budgeting difficult, so calculate your monthly payment in the worst-case scenario, and if it fits your budget and is an acceptable level of risk, the ARM will save you money in the end.