When it comes to financing your home, finding the right mortgage is essential. Adjustable-rate mortgages (ARMs) are a popular choice for buyers who want flexibility and may plan to move or refinance within a few years. At Kind Lending, we offer a range of mortgage options, including adjustable-rate mortgages, which may be the perfect fit for your homeownership goals. Let’s dive into how an ARM works and why it might be the right choice for you.
What is an Adjustable-Rate Mortgage (ARM)?
An adjustable-rate mortgage, or ARM, is a type of loan with an interest rate that initially stays fixed for a set period and then adjusts periodically based on market conditions. Unlike a fixed-rate mortgage, where the interest rate remains constant over the loan term, the interest rate on an ARM can change, often based on financial indexes like the U.S. Treasury rate. ARMs typically start with a lower interest rate compared to fixed-rate mortgages, making them appealing to buyers looking for lower initial payments.
How an ARM Works
ARMs have two main periods:
- Initial Fixed-Rate Period
During this period, which can range from 3 to 10 years, the interest rate remains stable. For example, a “7/6 ARM” means the rate is fixed for the first seven years.
- Adjustment Period
After the fixed period, the interest rate adjusts periodically, usually every six months. The new rate is based on a benchmark index and a fixed margin, which means monthly payments can increase or decrease over time depending on the market.
Benefits of an ARM
Adjustable-rate mortgages offer several benefits for certain homebuyers, especially those looking for short-term savings or expecting changes in their financial situation:
- Lower Initial Payments
ARMs generally start with a lower interest rate than fixed-rate mortgages, resulting in smaller monthly payments during the initial fixed period. This can be beneficial if you’re looking to save on payments in the short term.
- Ideal for Short-Term Plans
ARMs are a popular choice for buyers who don’t plan to stay in their home long-term. If you anticipate moving, selling, or refinancing before the adjustment period, you can benefit from the low starting rate without worrying about future rate increases.
- Potential for Lower Rates in Certain Markets
In some market conditions, an ARM’s rate adjustment could lower monthly payments if interest rates decrease after the fixed period.
Adjustable-Rate Options at Kind Lending
At Kind Lending, we offer flexible ARM terms within our conventional and Jumbo loan products. Here’s an overview of what’s available:
- 7/6 and 10/6 Jumbo Plus ARMs
These adjustable-rate mortgage options are designed for buyers financing high-value properties who want the benefit of a lower fixed rate initially, with the flexibility to adjust based on market conditions. After the initial fixed period (7 or 10 years), the interest rate adjusts every six months, giving homeowners a chance to take advantage of market rates in the future.
