What Is An
Adjustable Rate Mortgage?
Adjustable Rate Mortgages (ARMs) are home loans that have interest rates that can ﬂuctuate over the life of the loan. This means the monthly payment can vary throughout the life of the loan. ARMs are expressed using two numbers, such as 5/1 or 7/1. The first number indicates the number of years that the initial interest rate is fixed, while the second number indicates the number of years that the rate can adjust after the initial fixed rate period. For example, with a 5/1 ARM, the initial interest rate will be fixed for the ﬁrst 5 years of the loan. After these 5 years, the rate can adjust every year.
Top Reasons to Get an
Adjustable Rate Mortgage
Possible Long Term Savings
Because ARMs are tied directly to the market indices, the payments are often lower than a fixed rate loan.
Initial Cost Savings
Many ARMs have an initial period with a low interest rate. This rate is far lower than fixed-rate mortgages, which equals lower monthly payments.
ARM Eligibility Requirements
Below are the main factors that are evaluated when applying for an ARM:
Income to Debt Ratio
In order to qualify for an ARM loan, your income must be sufficient enough to cover your principal and interest at the maximum interest rate after the fixed rate period, plus taxes, insurance, mortgage insurance (if applicable) and all other debts.
Your credit score shows your history handling debt and is the strongest indicator of whether or not you will pay your mortgage on time. High credit scores may result in lower interest rates and greater financing options.
Your job history is also important in qualifying you for a loan. Lenders want to see that you have a consistent work history before offering you financing.
A Customized Loan
for Your Life Path
At Precision Home Loans, we believe in personalized banking. We use state of the art technology to make sure that you are advised, included, and supported through every step of the loan process. Most importantly, we take the time to know you and craft products that are tailored to you and your individual life path. Watch the video below to learn more about our unique approach to the loan process.