Adjustable rate mortgages (known as “ARMs”) are loans that are fixed for a certain number of years, and then the rate adjusts for the balance of the amortization term. The most common ARMS are the 3/1, 5/1, 7/1, and 10/1. These loans are typically amortized over 30-years. The first number represents the number of years the loan is fixed. The second number represents how often the rate adjusts after the fixed period. For example, with the 3/1 ARM, the rate is fixed for 3 years, and then will adjust annually each year thereafter. The adjusted rate is based on an index, such as the one-year LIBOR, plus a margin. The margin on the loan is fixed for the life of the loan. So, if the one-year LIBOR is 0.60, and the margin is 2.50, then the adjusted rate would be 3.10.
The interest rates on ARMs are typically lower than a 30-year fixed mortgage. So, for instance, if you know you will live in the home for no more than 5 years, then you may want to consider a 5/1 ARM to get the lower rate. Remember, the loan does not come due after the fixed period, rather, the payments continue for the remainder of the 30-year term, but the rate adjusts during this time period. Many people who obtained ARMs in the early 2000s still have those loans today as the adjusted rates have remained low.
When shopping for the best mortgage broker in Arizona, you need to know the history of the company and their mortgage brokers. At Counsel Mortgage Group, LLC, founded by an experienced CPA and attorney, we have closed hundreds of loans over the years and specialize in assisting you to obtain the right loan. Check our our experienced mortgage brokers and give us a call today or contact us. We look forward to working with you!