An adjustable rate mortgage (ARM ) is an alternative to a fixed-rate home loan. Typical advantages of ARMs include:

  • Lower starting interest rate
  • Lower starting monthly payment
  • Ability to afford more house space
  • Possible to pay less in return, in favorable market conditions

Homeowners with an ARM take advantage of an “introductory” interest rate set lower than that for conventional loans. The loan proceeds at this rate for an agreed-upon period, usually several years. Once the introductory period expires, the interest rate “resets” — moves up or down in line with the movement of an “index” (major interest rate). Following this movement, the amount of interest you pay each month gets larger or smaller. This type of loan is a great option for people who want a starter home or think they will move during the introductory period.

ARM loans are often shown as (X/Y). The X represents how many years you will get at the initial fixed interest rate. The Y represents how often the rate will change in years or months throughout the remaining life of the loan. When the rate changes, your monthly payments will increase if rates go up and decrease if rates fall.

Adjustable rate mortgages offer flexibility. The stability of a conventional fixed-rate mortgage works beautifully for settled homeowners who value a predictable monthly payment. But an adjustable rate mortgage might be the right choice for you if the plan is to move within five years. Maybe your first home is more of a starter home, or you’re ready to accept a short-term job transfer. Whatever the case may be, an ARM from PrimeLending allows you to accomplish your short-term goals.

Am I eligible for an ARM loan?

A good number of potential homebuyers are eligible to receive an adjustable-rate home loan, making them an appealing option. ARM borrowers typically have some of the following characteristics:

  • An income that can handle the maximum rate and monthly payment
  • Steady upward movement of income reasonably expected over the coming years
  • A low debt load that would not interfere with payments
  • Short-term ownership

Recent changes to ARM loans protect borrowers who take this option. These home loans have an adjustment cap and a lifetime cap, which limit the amount that an interest rate can adjust — in one adjustment period and over the loan term, respectively. There are also a series of disclosures that the lender must make, such as maximum interest rate and payment. The successful ARM candidate studies all this information and carefully considers how it applies to their own situation before making a sound decision, and PrimeLending is here to help you every step of the way.