Adjustable-Rate Mortgages in Bethesda, MD
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What is an Adjustable Rate Mortgage in Bethesda, MD?
One of the primary considerations during a home purchase is what type of a mortgage loan to get. Most buyers choose fixed rate loans that offer long term interest rate security. Not everyone, however, is looking to buy their forever home. Many buyers plan to purchase their starter home and make another move in a few years. This short-term plan may have to do with a job or military relocation, better school district, or just a desire for a different (bigger or better) home. For clients with a short-term plan an Adjustable Rate Mortgage (ARM) might be a good mortgage financing option.
Clients who choose a fixed rate mortgage loan keep the same interest rate for the entire duration of the loan, but the cost of this security is a higher interest rate. An Adjustable Rate Mortgage provides short term security, but at a lower interest rate. An ARM starts out with a lower interest rate fixed only for a few years, after which the mortgage interest rate will, depending on the market conditions, increase or decrease annually (or semi-annually).
The ARM mechanics in Bethesda, MD
The initial interest rate on an Adjustable Rate Mortgage is fixed for a certain number of years. This period depends on the loan program that the client chooses and can be 1, 3, 5, 7, or 10 years. Once this initial fixed rate period is over the loan interest rate can change up or down annually (or every six months). Even though the mortgage rate will fluctuate, the monthly loan payment is adjusted to ensure that the mortgage loan is paid off within 30 years. To protect borrowers and to prevent monthly payments from jumping up too high, Adjustable Rate Mortgages have embedded interest rate caps. These caps specify maximum year-to-year and loan lifetime interest rate adjustments (both up and down).
Example: You chose a 7/1 (2/2/5) Adjustable Mortgage. Your mortgage loan interest rate is going to be fixed for the initial 7 years, after which it will adjust every year for the following 23 years. The 2/2/5 numbers are the annual and lifetime rate caps.
The first “2” is the first allowed interest rate adjustment following immediately the 7-year fixed rate period – meaning that in year 8 your rate can go up by a maximum of 2%.
The second “2” is for every subsequent year following year 8 – meaning that in each of the years 9 through 30, your rate can also go up by a maximum of 2% each year.
“5” is the maximum lifetime interest rate adjustment – meaning that over the 23 years following the initial 7-year fixed period your rate can only go up by a maximum of 5% from your initial fixed period rate. In other words, no matter how much your interest rate fluctuates from year-to-year, the highest level it can reach is 5% above your initial fixed period rate.
Boris Cherner Mortgage Lender
Purchasing or refinancing your home is a complex undertaking that involves a number of participants and variables. I have been in the mortgage industry since 1997 and I understand the anxiety that comes with making the most expensive investment of a lifetime. My objective is to be your advisor, to educate you and to make the mortgage loan transaction as transparent and as stress-free as possible. I enjoy establishing personal connections and work mostly by referral. I thoroughly explain the process and available options, and guide my clients to make choices that best fit their needs and financial goals. Once the underwriting begins I communicate regularly and keep my clients apprised of the loan status from the beginning through the end. My relationship with clients does not end at the closing table. You are my client for life and I am always available to answer your questions and provide you with guidance.
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Types of Adjustable Rate Mortgages in Bethesda, MD
- 1/1 ARM – the interest rate is fixed for the initial 1 year (12 months) after which it will adjust every year for the following 29 years.
- 3/1 ARM – the interest rate is fixed for the initial 3 years (36 months) after which it will adjust every year for the following 27 years.
- 5/1 ARM – the interest rate is fixed for the initial 5 years (60 months) after which it will adjust every year for the following 25 years.
- 7/1 ARM – the interest rate is fixed for the initial 7 years (84 months) after which it will adjust every year for the following 23 years.
- 10/1 ARM – the interest rate is fixed for the initial 10 years (120 months) after which it will adjust every year for the following 20 years.
- 3/6 ARM – the interest rate is fixed for the initial 3 years (36 months) after which it will adjust every 6 months for the following 27 years.
- 5/6 ARM – the interest rate is fixed for the initial 5 years (60 months) after which it will adjust every 6 months for the following 25 years.
- 7/6 ARM – the interest rate is fixed for the initial 7 years (84 months) after which it will adjust every 6 months for the following 23 years.
- 10/6 ARM – the interest rate is fixed for the initial 10 years (120 months) after which it will adjust every 6 months for the following 20 years.
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Benefits and Drawbacks of Adjustable Rate Mortgages in Bethesda, MD
The main benefit of an arm mortgage is the lower interest rate and lower monthly payment. If you are on a short-term plan you may not want to pay the cost for long term security of a fixed arm mortgage rates and save your cash for other things.
The main drawback of an ARM is the high probability that your interest rate will go up after the initial fixed rate period. If your short-term plan changes and you decide to stay in your home longer, you may end up with much higher monthly payments.
Interest Only ARMs in Bethesda, MD
Some mortgage lenders in Bethesda, MD offer Interest Only Adjustable Rate Mortgages that only require monthly payments for interest and not principal. Since the principal balance is not being paid, you end up with a lower monthly payment. With no principal balance reduction, you will have a balloon payment at the end of the mortgage loan term. Interest Only ARMs function just like regular ARMs – with annual interest rate adjustments and annual and lifetime interest rate caps.
Reviews Adjustable-Rate Mortgages in Bethesda, MD
How to Apply for an ARM in Bethesda, MD
Choosing a mortgage loan type is making a choice between long-term security and short-term savings. This should be a well-thought-out decision. Before choosing an ARM loan consider the possibility that your future plans might change or that you might want to retain your home as a long-term investment property. A fixed rate loan may then be a stronger consideration. Please reach out to me for current interest rates and additional guidance at 312-296-4175 or email me at connect@borislending.com. I lend in all 50 states and I am never too busy for your referrals!!!
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FAQ about Adjustable-Rate Mortgages in Bethesda, MD
How do Adjustable Rate Mortgages work in Bethesda, MD?
The initial interest rate on an Adjustable Rate Mortgage is fixed for a certain number of years. This period depends on the loan program that the client chooses and can be 1, 3, 5, 7 or 10 years. Once this initial fixed rate period is over the loan interest rate can change up or down annually (or every six months).
What is the difference between an ARM and a Fixed Rate Mortgage in Bethesda, MD?
The main difference between an ARM loan and a fixed rate loan is that the interest rate on ARM will start to fluctuate after a certain number of years, but it will not change on a fixed rate loan for the entire loan term. An adjustable rate mortgage offers short term savings whereas a fixed rate loan offers long term security.
What are the risks of an Adjustable-Rate Mortgage in Bethesda, MD?
The main risk of an ARM is the high probability that the interest rate will increase after the initial fixed rate period and you may end up with a much higher monthly payment.
How to get an Adjustable Rate Mortgage in Bethesda, MD?
Carefully choose a mortgage lender by getting recommendations from the people you trust or by reading online reviews. Speak to the lender, discuss terms and ask questions. Fill out a mortgage loan application and provide supporting income and asset documentation.
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