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ARM Home Loan Types to Consider


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TERMINOLOGY

An ARM (adjustable rate mortgage) home loan provides you with monthly mortgage savings. The savings is typically called front end savings because only the first part of the mortgage is benefited. While you can save money on the front end, ARMs tend to be riskier on the back end because the interest rate can increase. Here are a few ARM home loan types that you should consider. 

5/1 ARM

This is perhaps the most popular type of ARM loan out there on the market. With a 5/1 ARM, you are getting a locked in rate for the first five years of the mortgage. Therefore, your payment will always be the same during that time period. After the five year term is up, the interest rate becomes adjustable. Every year, it can fluctuate for a certain period depending on the index that the interest rate is based on.

Convertible ARM

Another popular product is the convertible ARM. With this type of loan, you start out with a regular ARM loan. Then after a certain amount of time, you can decide to convert it over to a fixed rate loan if you want. The rate on this type of loan is not usually as low as other options, but may still be low enough to reduce your monthly payment.