There are many home loan options available, and the ARM loan (Adjustable Rate Mortgage) remains a preferred choice. Well known for its low introductory rates and low down payment requirements, an ARM loan appeals to first-time buyers and established homeowners as an attractive money-saving loan. If you're considering buying a house or refinancing an existing Mortgage, here's what you need to know about an ARM Loan.
What is an ARM Loan?
Often called an ARM by lenders, an Adjustable Rate Mortgage (ARM) is a home loan featuring a variable rate, low down payment, no private Mortgage insurance and loan terms up to 30 years.
An ARM loan has a fixed rate for a set introductory time period; typically five to ten years. Once the fixed rate period ends, the current rate will adjust according to the market, and payments will either decrease or increase. Rate adjustments take place every five to ten years thereafter depending on the type of ARM.
Changes to the Mortgage rates are based on a benchmark index that reflects conditions in the lending industry. Depending on the terms of the ARM, rate changes may occur monthly or annually.
For a quick comparison of ARM vs fixed rate Mortgages, check out this infographic.
Do ARM Loans Require Down Payments?
Homebuyers considering an ARM loan can benefit from a low down payment requirement. Applicants with a reasonably sound credit score, debt-to-income ratio, and repayment history may be able to put down as little as 10%. While the minimum is 10%, increasing this amount will help lower your monthly payment.
Different Types of ARM Loans
Just as there are many types of home loans, there are different types of ARM loans. One of the most popular options is the 10/10 ARM due to the low down payment requirement, low introductory rate, and because it doesn't require Private Mortgage Insurance.
The 10/10 ARM offers convenient repayment terms and long-term savings, allowing borrowers to start with a ten-year fixed rate period before rate changes occur. This aspect remains particularly attractive to first-time buyers who desire static monthly expenses as they pursue career opportunities and grow their families. Although the 10/10 ARM continues to be a popular type of home loan, other Adjustable Rate Mortgages exist that may be suitable for those with different needs.
- 7/7 ARM Loan: This home loan maintains a set Mortgage rate for seven years, followed by changes every seven years.
- 5/5 ARM Loan: This ARM loan offers a five-year fixed Mortgage rate period, followed by changes every five years.
When considering the types of home loans that fit your needs, it’s essential to weigh adjustable vs fixed rate mortgage products. The seemingly slight nuances can make a significant difference in terms of repayment and fitting into household budgets.
How are ARM Loans different from Fixed Mortgage Loans?
The main difference between an ARM loan and a fixed rate Mortgage is that a fixed rate Mortgage has a constant rate, while an ARM loan has a variable rate (changes over time). ARM loans typically feature lower down payment requirements, no Private Mortgage Insurance, lower introductory rates, and lower monthly payments than most fixed rate Mortgages.
To discover your maximum house-hunting budget, download our free guide:
Can You Refinance an ARM Loan?
If you're wondering about ARM refinancing, you're not alone. Adjustable Rate Mortgage refinancing is a great strategy to consider. Some borrowers save money during the introductory period and refinance to another type of home loan before the introductory period ends. This makes sense if Mortgage rates are likely to climb to an uncomfortable level.
Homeowners with a fixed rate Mortgage may refinance into an ARM loan to lower their monthly payments. This makes sense if Mortgage rates drop and ARM rates are lower than their current fixed rate.
The key to refinancing into or out of an Adjustable Rate Mortgage is generally driven by savings. It’s important to discuss all of the options with a Mortgage professional at your local trusted credit union.
How to Apply for an ARM Loan
Interested in applying for an ARM loan? Peach State can help you finance your dream home or refinance your existing loan with ease!
For more information and details, contact our Mortgage Service Department at 770.580.6098 or mortgage@peachstatefcu.org. We offer competitive low interest rates, flexible terms, and online applications that are just a click away!
To help decide if an ARM Loan is the right choice for your home loan, check out all of your options in our free guide, "How Much House Can I Afford in Georgia or South Carolina."
