Do you need a low initial monthly payment?

Plan on relocating in the next 5 years?

Want to maximize your short term cash flow?

If you answered YES to any one of those questions, then you may want to consider an adjustable rate mortgage (ARM) as part of your financial plan.

Adjustable Rate Mortgages (ARMs) provide a set interest rate for only the initial term of the loan. Typically ARMs offer lower initial interest rates on your home mortgage than a traditional fixed rate mortgage. The good news is this will mean lower payments during the first years of your loan. For ARMs, lenders are able to offer lower initial rates because the borrower assumes the risk of the unknown in future years, as economic factors change. And the lender adjusts interest rates to reflect current economic conditions

Interest rates for ARMs are typically set for a specific initial period of time. This initial rate is held constant for typically 1 to 5 years. After the initial period, the adjustment period may be monthly, quarterly or annually and the amount of the adjustment is tied to a specific index. This means as the index increases, the interest on an ARM will increase. Some common indices used include one year Treasury notes (CMT securities), a Cost of Funds Index (COFI), the London Interbank Offered Rate (LIBOR) or a proprietary lender index.

When an Adjustable Rate Mortgage (ARM) Can Be the Right Choice

• your income will increase significantly in the short term, an ARM can help you better afford a better house today, with the assurance that you can manage increased monthly payments in the future.
• Some consumers opt for an ARM if they are close to paying off other outstanding debt. For instance, if they have 2 years left to pay on a car loan, an ARM can help navigate short term expenses, with the understanding that once the car is paid in full, they will be better positioned to pay higher mortgage payments, if their ARM increases.
• If you are going to own a home for a short period of time (less than 5 years), an ARM may make your monthly payments and overall cost of home ownership more affordable.

Home Lender Depot – Let Us Shop and Compare For You

Terms for ARMs vary widely. The experts at Home Lender Depot can help you clearly understand the terms of the agreement you are signing and ensure the loan is the best choice for your individual situation. We ensure our customers understand their overall annual percentage rate (APR) of the agreement, so they have a clear understanding of the terms of the agreement.

ARMs – Check the Facts

• Your interest rate and therefore your monthly payments with an ARM will change over the life of the loan.
• Even if interest rates go down, you may not see an adjustment in your interest rate that corresponds to lower interest rates.
• Your monthly payments may change, even if interest rates don’t go up.
• There may be an early payment penalty tied to an ARM.
• Know what index is used for your ARM calculation and the margin between the index and your ARM interest rate.

Understanding Adjustable Rate Mortgages (ARM)

The loan experts at Home Lender Depot understand that the technical jargon used to define ARMs can be complicated and confusing. An understanding of these terms can help you make an informed decision, guided by the expertise of the consultants at Home Lender Depot.

Index

The broad economic index that determines the amount of increase or decrease in your interest rate over time.

Most common:

• One year Treasury notes (CMT securities)
• Cost of Funds Index (COFI)
• London Interbank Offered Rate (LIBOR)
• Proprietary lender index

Margin

An interest rate tied to a specific economic index does not mean the interest rate is EQUAL to the economic index, but rather the interest rate changes parallel the index. Most lending institutions add a markup above the economic index to your interest rate. For instance, if your loan interest is tied to CMT, which is currently 0.37%, your interest rate may be 3 points higher than this rate, or 0.37% + 3% = 3.37%. Your fully indexed rate is calculated as Index (0.37%) + Margin (3%) = 3.37%. The margin may also be tied to your credit score – a higher credit score translates to a lower margin with many lenders.

Initial Interest Rate Period

Most ARMs offer an initial period of 1, 3 or 5 years of constant interest and payments, followed by a period of adjustable interest.

Interest Rate Caps

Limits may be specified on how much interest can increase or decrease on an ARM, most commonly through 2 types of caps. A periodic adjustment cap limits the amount an interest rate can change from one adjustment period to another. A lifetime cap places an upper limit on how much the interest rate can increase over the life of the loan. Federal law requires a lifetime cap be specified for all ARMs. The most common caps are expressed as follows:

Making Sense of the Jargon

3/1 – Interest will be constant (fixed) during the first 3 years of the loan, and then periodic adjustments will be made annually. A 5/1 loan (fixed rate for 5 years, then annual interest rate adjustments), 7/1 loan, and 10/1 loan is similar to a 3/1 loan.

3/27 – Interest will be constant (fixed) during the first 3 years of the loan, and the adjustable period of the loan is 27 years. This type of loan will typically have interest rate adjustments every 6 months, instead of annually.

We recognize that ARMs can be complicated and difficult to understand. The experts at Home Lender Depot can help you understand the benefits and risks associated with this type of loan. We work with only FDIC insured lenders in all fifty states and have over 120 lending channels to make sure our customers get the loan that is right for them.

Call 1-877-867-0027 to speak with one of our loan experts to see if this type of loan is right for you.

Our Loan Specialists are standing by to help guide you through all of your loan options and find the one that best meets your goals and fits within your budget.