Adjustable rate mortgages are loans that have interest rates that change on a schedule throughout the length of the loan. When a loan is first established, the interest rate of an ARM is lower than the average market rate at that time. Most commonly, buyers get an adjustable rate mortgage and then refinance when the “schedule” changes or “fixed” time period ends. Why? Because while an adjustable rate mortgage initially gives buyers a lower interest rate —  that interest rate can and will change throughout the life of your loan. 

Other than a plan to refinance in the future, buyers might also choose an ARM loan because they don’t plan on living in their home for very long (shorter than the fixed rate period usually) or they know they’ll earn significantly more money in coming years. 

So how does this “fixed rate” time period work before the interest rate is adjusted? Typically, the interest rate changes every six to twelve months, but it can change as often as every month! Often, a loan will have a larger chunk of time where it’s fixed initially. So, five years of fixed and then a rate that changes yearly would be signified as 5/1. A fixed loan for three years and then changing every year  would be a 3/1 and so on and so forth. The most common ARM loan time periods are 1/1, 3/1, 5/1, 5/5 (adjusting every five years), 7/1 and 10/1. 

Time and money really are the key factors for deciding if an adjustable rate mortgage works for you and we will work with you to make sure we make the best decision.