Adjustable Rate Mortgage (ARM) Loan
Are you in the market for a mortgage but unsure of which option is right for you? Consider an Adjustable Rate Mortgage (ARM) loan for your mortgage needs. An ARM loan can be a great option for those looking for a lower initial interest rate and potential savings over time.
With flexibility and the ability to refinance or sell your home without penalty, an ARM loan can provide you with the financial freedom you need.
What is an Adjustable Rate Mortgage (ARM) Loan?
An ARM loan is a type of mortgage that has an interest rate that may fluctuate over time based on a benchmark rate. This means that your monthly mortgage payments may vary depending on market conditions. ARM loans typically have a lower initial interest rate compared to fixed-rate mortgages, making them an attractive option for those looking to save money in the first few years of their mortgage.
An ARM loan consists of two periods:
- Fixed Period: The interest rate remains constant during this period, which can last between five, seven, or ten years. This period is commonly referred to as the intro or teaser rate.
- Adjustable Period: This is the time when the interest rate may change, based on the underlying benchmark, which is influenced by market conditions.
Another important aspect of ARM loans is whether they are conforming or non-conforming. Conforming loans meet the standards set by government-sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac and are sold as investments on the secondary market. Non-conforming loans, on the other hand, do not meet these standards and are not sold as investments.Get qualified for an ARM loan
ARM rates are also subject to caps, which means that there are limits to the maximum interest rate a borrower will have to pay. However, it’s important to note that your credit score plays a significant role in determining your interest rate. A higher credit score typically translates to a lower interest rate.
An ARM has fluctuating rates based on market conditions. This means that you benefit from falling rates and also run the risk if rates increase.
How to Get an ARM Loan
To determine if you are eligible for an ARM loan, simply reach out to AAA Banking and we will guide you through the process. We have outlined the necessary steps and required documentation to help you get started and ensure a smooth application process.
The Financing Process
Our financing process is simple and transparent. You can apply for an ARM loan by completing an application either online or over the phone.
You’ll need to provide information about your financial situation, including your income, credit score, and employment history. Once you have submitted your application, our team will review it and determine if you meet the eligibility criteria for an ARM loan.
If your application is approved, we will provide you with a detailed loan estimate that outlines the terms of the loan, including the interest rate, payment schedule, and any fees associated with the loan.
Once you have reviewed and accepted the loan estimate, we will schedule a closing date. During this stage, you will need to sign the loan documents and pay any closing costs associated with the loan.
After the closing, you will begin making payments on your ARM loan based on the terms outlined in your loan agreement. Your interest rate may adjust periodically, depending on market conditions and the terms of your loan
ARM Loan Requirements to Meet
To be eligible for an ARM loan, you must meet certain requirements, including a minimum credit score, a stable source of income, and a down payment.
- Generally, a credit score of 620 or higher is required to qualify for an ARM loan.
- Your Debt-to-Income (DTI) ratio, which measures your monthly debt payments as a percentage of your gross monthly income, should be at or below 50%.
- You will need to make a down payment, which may vary based on the terms of your loan and other factors.
- You will need to provide documentation to verify your income, including recent pay stubs and tax returns, as well as employment history and verification.
- An appraisal of the property you intend to purchase will be required to determine its value.
ARM Loan FAQs
A conventional loan has a fixed interest rate that remains the same throughout the life of the loan, while an ARM loan has an interest rate that may fluctuate based on market conditions. Conventional loans are typically easier to qualify for, while ARM loans offer more flexibility. The choice between the two depends on individual financial circumstances.
An ARM loan may be a good fit for you if you are comfortable with potential fluctuations in your monthly mortgage payments and are looking for a lower initial interest rate. However, it’s important to consider your long-term financial goals and risk tolerance before deciding on an ARM loan. Speaking with a loan officer can help you determine if an ARM loan is a suitable option for your individual circumstances.
ARM rates are typically subject to caps, which limit the maximum interest rate a borrower will have to pay.
The frequency of interest rate changes will depend on the terms of your loan. Typically, adjustments are made annually or every six months.
*Consult your tax advisor for further information regarding the deductibility of interest and charges.