Whether your job requires you to constantly move or you’re just not ready to settle down long-term in one area, you may be hesitant to take on the financial responsibility of a mortgage. However, there’s a way you can become a homeowner without having to apply for a home loan with higher rates than you want: choosing an adjustable-rate mortgage (ARM). Learn everything you need to know about ARMs with Landmark National Bank’s mortgage specialists below.
An adjustable-rate mortgage—or ARM—is a home loan with an interest rate that fluctuates, meaning your monthly payments can increase or decrease. Unlike a conventional fixed rate mortgage loan, an ARM has a period in which the initial interest rate is a fixed, lower percentage. Once this period ends, however, the payments can rise or fall along with the interest rate.
The most popular ARM is referred to as a Hybrid ARM. A Hybrid ARM includes fixed initial rate periods of 1 – 10 years, then will be adjusted annually for the remaining term of the loan.
Applying for an ARM loan is a similar process to applying for a conventional fixed-rate mortgage or VA loan; the higher your credit score, the better your chances of getting more affordable rates. Additionally, a common ARM loan requirement is that your payments do not exceed more than 28% of your gross monthly income. Most adjustable-rate mortgages also require at least 5% for a down payment.
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While conventional fixed-rate mortgages range between 15 and 30 years in length, ARM loans are primarily 30-year mortgages. A 30-year mortgage may seem intimidating, but it is common for homeowners who choose an ARM loan to sell their homes during the fixed interest rate period.
As a home loan that features an interest rate that can constantly fluctuate, an adjustable-rate mortgage may seem concerning to potential homebuyers. However, there are several situations where an ARM loan is more beneficial than a fixed-rate mortgage.
If you’re a short-term or first-time homeowner, are expecting to see a significant increase in your income, or plan to have the money needed for any anticipated interest rate increases, an ARM loan offers flexibility and initially lower interest rates.
In the event that mortgage rates are currently high, an ARM loan allows you to take advantage of lower monthly payments or qualify for a higher loan amount. Additionally, an ARM loan’s lower interest rates may allow you to pay more of your principal every month.
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While there are benefits to choosing an adjustable-rate mortgage, it’s crucial to take into account a variety of factors, from your current income, payment amortization, and life plans to the future of the housing market. Fortunately, Landmark National Bank is here to help.
Recognized as one of the top mortgage lenders in Kansas, we can help you choose the home loan that makes the most sense for you at competitive rates. Talk to one of our mortgage specialists today to learn more about adjustable-rate mortgage qualifications, requirements, and more. You can also use our Quick Rate Calculator for a general mortgage estimate.
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