Adjustable Rate Mortgage Explained

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Whether you are a first time home buyer or looking to move into your next dream house, getting the right mortgage is crucial to helping you accomplish your goals. While there are many home financing options available on the market today, let’s take a look at the popular adjustable rate mortgage and how it works.


What is an Adjustable Rate Mortgage?

An adjustable rate mortgage also known as an ARM is a type of loan that has an interest rate component that can fluctuate during the life of the mortgage. Based on this, your monthly house payment has the potential to stay the same or change after an initial period of time.

Generally speaking, the starting interest rate that you will receive with an ARM is usually lower than a comparable fixed rate mortgage arrangement. However, the ARM rate can differ periodically based on changes to the corresponding financial index that is tied to your loan.

How Does an Adjustable Rate Mortgage Work?

Adjustable rate mortgages are normally identified by their specific terms. As an example, a 30 year, 5/1 ARM has a loan term of 30 years and a guarantee that the interest rate will remain the same for the first 5 years. Once the initial 60 month period is over, the bank can adjust the rate up or down once per year based upon the market driven index connected to it. There are a variety of ARM programs in the marketplace today, so it is best to find the loan rate that is the right fit for you.

What is the Advantage of an Adjustable Rate Mortgage?

There are many advantages to choosing an adjustable rate mortgage to finance a home.

  • A lower interest rate and monthly payment during the initial stages of the loan.
  • The ability for homeowners to benefit from lower interest rates without having to go through the refinancing process.
  • Ideal for homeowners who do not plan to stay in their residence longer than 5 years.
  • Helps buyers save money on a monthly basis, which can be used to build up savings or make investments.
  • ARM’s can be used to make an initial purchase or refinance a home.

Is An Adjustable Rate Mortgage Right For You?

The highly knowledgeable and experienced team at Carolinas Telco Federal Credit Union (CTFCU) has been helping our members with all of their financial needs since 1934. If you would like to learn more about the adjustable rate mortgages we offer, contact us today. We are more than happy to discuss with you which mortgage program will best suit your unique needs.

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