Adjustable Rate Mortgage ARM

All Current ARM Interest Rates

Many people plan on moving within a specified number of years, and many people plan on refinancing again in a specified period of years either to take cash out, to remove mortgage insurance or for a variety of other reasons. The average American is only in a loan of about five years. When evaluating an ARM mortgage versus a traditional fixed mortgage, you should figure out how many years your loan will be fixed, how much money you will save relative to a traditional ARM, and how many years after the fixed period ends, those savings will carry you before the traditional mortgage was a better choice. For example, if you will save $30,000 over the next 5 years on a 5/1 ARM mortgage refinance, and let’s presume that after the fixed period, the mortgage rises the maximum 2% per year, you might find that you can actually go 6.5 or 7.5 years on the ARM before the savings are depleted and the regular fixed rate product was a better chance. These loans result in low monthly payments, ideal for a first time homebuyer who may not be in a house for 30 years.

Two loan programs that are popular are the 3 Year Mortgage Purchase ARM and 10/30 Year Mortgage Purchase ARM.

The 3 Year Mortgage Purchase ARM is popular because it allows you to fix the rate for the first three years of the mortgage. The interest rates are incredibly low, oftentimes in the 3% range, and there are caps on these loans so the interest rate can only increase up to a maximum of 5% or 6% above the starting rate. A great program for the borrower looking to minimize the monthly payment while still securing a fixed rate on your interest and not risking negative amortization. Also, these loans typically come without a prepayment penalty so you can refinance later if you think the rates are rising too quickly.
3 Year ARM

The 5/1 Mortgage Purchase ARM is another popular product. With the caps and the fixed rate period, borrowers can meet their important goals of low monthly payments and a stable fixed rate period.
5 Year ARM

Here's an example: Let’s say you are looking to buy a house and you think that the 3 Year Mortgage Purchase ARM provides the right match to your needs for low monthly payments and you are comfortable with the 3 year fixed rate period. If you are buying a house for $100,000, and your interest rate is 6.0% on a regular 30 year fixed , your interest rate on a 3 Year Mortgage Purchase ARM might be 4.0%. The payment for the regular 30 year fixed, not including taxes and insurance, would be $599.55 but your payment for the 3 Year Interest-Only Mortgage Purchase LIBOR ARM would be $477.42 per month. Add to that the tax benefits of owning a home, which can be calculated by taking your total annual interest payments on the 3 Year Mortgage Purchase ARM and calculating how much in taxes you would save if you didn’t have to pay taxes on that amount of income. So, if your monthly payment is $477.42 and the interest payment is $333.33, then your annual interest payment is $3,996. That’s $3996 of annual income that you don’t have to pay taxes on. If you are in the 40% tax bracket, then that’s $1,600 of savings per year on your tax bill, or $133.33 per month of tax benefits. Subtract $133.33 from your monthly payment of $477.42 and you have a $344.09 monthly payment for your $100,000 new house, including the tax benefits but not including taxes and insurance.