Adjustible Rate Mortgages

A little flexibility can save you money.

Definition:
A loan with an interest rate that is adjusted periodically based on changes in a specified index. As a result, the interest rate on your loan and the monthly payment will rise and fall with increases and decreases in overall interest rates. An interest rate cap limits the amount the interest rate can change.

The standard ARM program calls for a thirty-year term, thirty year amortization.  This is typically tied to the one (1) year T-bill with the defined maximum annual rate caps and lifetime caps, i.e. 2/6 caps (2% maximum annual increase / 6% maximum term increase). 

These products have a definite fixed interest rate during the initial period of the mortgage and then adjust every period thereafter.  For example:

5/1: Fixed interest rate for five years and then adjusts every year thereafter for thirty years.

3/3: Fixed interest rate for three years and then will adjust every three years thereafter for thirty years.

7/23: Fixed interest rate for seven years and then will adjust once for the next twenty seven years.

As you can see, there are many variations to the ARM product; your BBN Financial consultant will select the best program for your unique needs.

Advantages:

• Lower interest rates than fixed interest.
• Short-term solution for less than perfect credit clients.
• Short-term solution for home owners not looking to reside in their residence forever. 

Disadvantages:

• Gamble on the fluctuation of interest rate in the coming years.