Arizona Adjustable Rate Mortgages
If you are looking for a shorter term Arizona mortgage loan with a lower initial interest, then an adjustable rate mortgage (ARM) may be the best option for you. Most Arizona borrowers choose an ARM if they are planning on keeping the property for less than 10 years or they expect their income to increase. Interest rates on ARM’s fluctuate with market conditions. If your mortgage resets and rates go up, you could end up with a much higher mortgage payment. You may not be able to refinance to a lower rate for awhile until you buiId up equity in your home. So before you make a decision to choose an ARM, you should think about the following:
- Whether there is a prepayment penalty
- If there is a balloon payment
- The current interest rate, index, margin, and whether there is a cap rate
Typical adjustable rate products:
1 Year ARM
The interest rate is fixed for the first year and adjusts annually thereafter for the rest of the loan term.
3 Year Arm
The interest rate is fixed for three years and adjusts annually thereafter for the rest of the loan term.
5 Year ARM
The interest rate is fixed for the first five years and adjusts annually thereafter for the rest of the loan term.
10 Year ARM
The interest rate is fixed for the first ten years and adjusts annually thereafter for the rest of the loan term.
Interest Only ARM
You pay interest only for the first 10 years.
The 5 year ARM or the 10 year ARM are less risky because you can at lock in a loan rate for 5 to 10 years. This ARM works quite for buyers who are planning on moving in five to 10 years. Nowadays, most borrowers don’t stay in their homes 30 years.
Understanding the Lingo
If you see an ARM described as 1-1, 3-1, and 5-1, the first number means the initial loan term where you interest rate is fixed, and the second number is how often the loan readjusts after the initial term end.
While ARM’s are not right for every Arizona borrower, they appeal to buyers who are looking for a lower Arizona mortgage rate during their initial loan term. If you are unsure whether an ARM is the right loan product for you, your Arizona mortgage broker can help you find the best rates and loan terms for your financial needs.
January 1, 2010 by Eddie Knoell · Leave a Comment
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