While Fixed Loans have long been the industry standard, ARM’s or Adjustable Rate Mortgages have become very popular – accounting for 30-40% of loans originated. Typically, ARM products have an interest rate that is fixed for a specified term, called the start rate or introductory rate, and then begin to adjust at specified intervals based on an index. This start rate or introductory rate can last anywhere from 1 month to as long as 10 years. As a rule, the lower the start rate is the shorter the time before the loan makes its first adjustment.

Option ARM: An adjustable rate mortgage with added flexibility of making one of several possible payments on your mortgage every month; a great product to manage monthly cash flow.

Benefits of an ARM:

1. Lower interest start rates – sometimes as much as 5% below the current market rate of a fixed loan.
2. Allow you to purchase a more expensive home because the payments are lower.
3. An ARM with an index such as the LIBOR reacts quickly and lets you take full advantage of falling interest rates.
4. An index that lags behind the market, such as the 12-Month Treasury Average, lets you take advantage of lower rates after market rates have started to adjust upward.
5. A great loan for borrowers not planning to hold onto the property for an extended length of time, or who need the flexibility of choosing their monthly payment to optimize cash flow.

Draw Backs:

1. Once your ARM begins to adjust, your monthly payment could begin to increase if interest rates are climbing. Depending on the index this could happen annually or even as frequently as every month.