NJ Adjustable Rate Loan (ARMs)
Unlike a fixed rate mortgage where the interest rate remains the same throughout the life of the loan, with an adjustable rate mortgage (ARM) the interest rate you pay is adjusted from time to time as market rates change.
Your adjustment could be daily, monthly, every six months … or more commonly, once a year. This means as the interest rate markets adjust, your monthly mortgage payment may go up or down depending on market conditions.
Benefits of an Adjustable Rate Mortgage:
- Initial below market interest rate
- Lower interest payment when ARM indexes go down
- Ability to afford a higher loan amount
ARMs are an attractive means of financing because of their initial “below market” interest rate. That is, the starting rate on most ARM loans is below fixed rate levels. And because ARM payments start off lower than fixed rate options, you can usually qualify for a larger loan amount.
You might consider an adjustable rate loan if,
- You plan on moving or recasting your loan within the next few years
- You are confident your income will increase in the future
- You don’t mind the risk of a higher payment should interest rate indexes climb
The amount your payment may increase or decrease will depend on the “annual” and “lifetime” interest rate caps. The caps, which set a maximum periodic and lifetime adjustment of your mortgage payment, are set at the closing of your mortgage loan. Before applying for any ARM product, make sure you are comfortable with the maximum mortgage payment ( lifetime cap ).
It is also important to know what index you ARM will be adjusted against. Two of the most common indexes are the United States One-Year T-Bill and the London Inter-Bank Offered Rate (LIBOR).
Find out if an Adjustable Rate Mortgage (ARM) is right for you
Call or email a local American United Lending Professional today.
