An ARM is an adjustable rate mortgage. Many ARMs are like the 5/1 ARM, where the rate is fixed for the first 5 years of the loan, and then adjusts every year thereafter for the balance of the loan term.

There is another ARM product called the 5/5 ARM. This product has a low initial fixed rate for five years, and then adjusts and is fixed for another five years. Thus, there are only 2 adjustments to the rate over the first 15 years of the loan. It will adjust to the 5-year CMT (Constant Maturity Treasury index) plus a margin of 2%. The rate can adjust by a maximum of 2% every five years, with a cap of 5% from the initial rate. If rates go down, your rate will, too. There is no prepayment penalty, so you can refinance at any time.

Contact us if you have questions on choosing the right ARM product.

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