FAQs (data-driven)
Adjustable Rate Mortgages
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What is an Adjustable-Rate Mortgage (ARM)?
A loan that initially has a fixed rate for a designated time period. The rate will then adjust based on the loan terms and the current market conditions.
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How does an Adjustable-Rate Mortgage (ARM) work?
Variations can occur with an ARM. Generally, an ARM will have a designated time period for the initial fixed rate, then will change per the loan terms. For example, a 5/1 ARM will have an initial 5-year fixed rate period. Beginning the 6th year, the rate will adjust yearly according to the current market rates. The first number indicates the fixed rate time period, the second number indicates the variable rate time period.
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When does my ARM rate begin to adjust?
An ARM will have an initial fixed rate for a designated time period. The change will occur according to your loan terms. This can happen yearly or every 6 months, depending on your lender. Goldenwest Credit Union currently offers ARMs with variable rates adjusting yearly, after the initial fixed rate time period.
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Does my monthly payment change?
During the fixed rate time period your monthly principle and interest payment will remain the same. Once the variable rate time period starts, your monthly principle and interest payment will change based on your rate adjustment.
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What are the risks of an Adjustable-Rate Mortgage (ARM)?
Risks to be aware of while considering an ARM vary. An ARM does include a fixed rate for a set period. After the fixed period, the rate becomes variable. Due to the rate becoming variable, your payments will adjust. Most people choose to refinance their mortgage towards the end of their fixed rate period due to variability.
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What are the benefits of an Adjustable-Rate Mortgage (ARM)?
Benefits include:
- Lower initial payments
- Lower initial interest rate
- Beneficial option for a second home or investment property -
Can I refinance from an Adjustable-Rate Mortgage (ARM) to a fixed rate mortgage?
Yes, this is generally the purpose for an ARM. An initial lower rate offers flexibility to future market conditions.