JTB Homes wants to make sure you understand an alternative loan method to the traditional 30 and 15 year fixed options to help make it more affordable for you as interest rates go up.
An ARM loan is an adjustable-rate mortgage, where the interest rate can adjust up or down depending on the market. Typically ARM loans start with a fixed rate period up front. With an ARM loan, the borrower exchanges the risk of their rate rising in the future for the reduced interest rate upfront in the initial fixed period. The most common ARM term today is the seven year and is currently sitting on average, around 1.5 to 1.75% (this varies from lender to lender and day to day) lower in rate than the standard 30 year fixed rate. With a fixed-rate mortgage, the borrower locks in a rate for the life of the mortgage. The below example helps to show you the difference in monthly payment between the two loan types.
*Interest rates are subject to change daily. Rate and fees depicted are based upon a 720 credit score.
**APR = Annual Percentage Rate.
***Payments above on taxes and insurance (if applicable) are estimates. The actual payment obligation may be greater.
You may have more questions. Let us help answer those here:
Didn’t ARM loans cause most of the problems in the Great Recession?
Yes and No. Yes, the subprime (designed for individuals with challenged credit and little to no down payment) 2 year ARM, which had steep prepayment penalties, left many in homes they could not afford keep or sell, causing a domino effect on the housing market. However, today’s HYBRID mortgage is different. They now offer longer fixed periods with no prepayment penalties. They also provide a cap on the maximum the rate can increase after the fixed period lapses (3, 5, 7 or 10 year period).
Are closing costs higher on ARM loans?
No. The fees are the same for both ARM and Fixed Rate mortgages.
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