Types of Mortgage


2. Adjustable Rate Mortgage

Adjustable-rate mortgages (ARM) are popular because they usually start with a lower interest rate, so your monthly payments are lower. This allows you to qualify for :

* A larger mortgage than would be possible with a fixed-rate mortgage.
* The interest rate on an ARM is adjusted periodically based on an index that reflects changing market interest rates.

Benefits :

* ARMs have a lower initial interest rate than fixed-rate mortgages. The difference in cost may allow you to qualify for a more expensive home.
* ARMs can be a good choice when interest rates are high. If interest rates are high when you get the mortgage but drop over the initial period or any subsequent adjustment period, your monthly payment may decrease.
* An ARM that has its initial adjustment after the 5th or 7th year can save you money if you plan to stay in your house that long.

Which is right for you?

A. With a fixed rate mortgage (FRM), your monthly payments will be steady. Whereas, with an adjustable rate mortgage (ARM), your payments will vary time and again.
B. Adjustable rate mortgages have an initial fixed rate lower than the rate of a comparable fixed rate mortgage. The initial fixed rate period is followed by adjustment intervals. For example, a "3/1 ARM" is fixed at an initial low rate for the first 3 years, and then adjusts every year based on an index.

Common ARMs are :

1/1 ARM - A 1/1 ARM is an adjustable-rate mortgage, or ARM, that has an initial interest rate for

3/1 ARM - A 3/1 ARM is an adjustable-rate mortgage, or ARM, that has an initial interest rate for the first three years, and thereafter adjusts each year. Each annual rate adjustment is based on (or "indexed to") another rate - often the yield on a Treasury note. The rate can only change within limits - by a specified amount each year, and a specified amount over the life of the loan.

5/1 ARM - A 5/1 ARM is an adjustable-rate mortgage (ARM) that has an initial interest rate for five years, and thereafter has an adjustment interval of one year. The adjustment is based on (or "indexed to") another rate - often the yield on a Treasury note.

7/1 ARM - A 71 ARM is an adjustable-rate mortgage, or ARM, that has an initial interest rate for the first 7years, and thereafter has an adjustment interval of one year. Each annual rate adjustment is based on (or "indexed to") another rate - often the yield on a Treasury note.

10/1 ARM - A 10/1 ARM is an adjustable-rate mortgage, or ARM, that has an initial interest rate for the first 10 years, and thereafter has an adjustment interval of one year. Each annual rate adjustment is based on (or "indexed to") another rate - often the yield on a Treasury note.

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