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Adjustable Loans

Lower Interest at the Beginning

Adjustable-rate mortgage(ARM) loans provide a low interest rate for an initial payment period, making the initial monthly payments less than those a fixed-rate mortgage usually offers.

Adjustable Loans Reflection on payments

After the lower initial rate period, the ARM loan’s interest rate will adjust to a fully indexed rate, and it is likely that your rate and your payments will increase. If the rate goes up after the initial period, your monthly payments go up, so you want to be financially prepared to make larger payments.

ARM loans are available for a 30 year† term. In addition to the term, ARMs have different options for how long the initial interest rate will last before the rate can start to adjust. So, for example, you could get a 7/1 ARM, and your interest rate and payment would stay the same for 7 years before being open to annual adjustment.

When you consider ARM loans, find out how and when your rate can change, because those factors will determine how much your monthly payment is.

Terms Available

10/1 Adjustable-rate mortgage: A 10/1 ARM has a fixed interest rate for the first 10 years. After 10 years, the rate can change once every year for the remaining life of the loan. When the rate changes, your monthly payments will increase if rates go up and decrease if rates fall.

7/1 Adjustable-rate mortgage: A 7/1 ARM has a fixed interest rate for the first 7 years. After 7 years, the rate can change once every year for the remaining life of the loan. When the rate changes, your monthly payments will increase if rates go up and decrease if rates fall.

5/1 Adjustable-rate mortgage: A 5/1 ARM has a fixed interest rate for the first 5 years. After 5 years, the rate can change once every year for the remaining life of the loan. When the rate changes, your monthly payments will increase if rates go up and decrease if rates fall.

Is this loan right for me?

A Good Choice if you:

• Are planning to move in a few years (before the end of the initial rate period) and therefore aren’t concerned about possible rate increases
• Expect your income to rise enough in the coming years to cover any increase in payments resulting from an increase in the interest rate
• Want a lower initial monthly payments than a fixed-rate mortgage usually offers
• Think interest rates may fall in the future

Some Disadvantages of Adjustable-Rate Mortgages:

• Interest rates will increase in a rising rate environment
• Increase in rates will increase payment amount, which may not keep pace with increase in income
• Increase in interest rate will reduce accumulation of equity, especially where home values are declining, and may make it more difficult to refinance your loan