Explore the Mortgage101 Library
Check Local Mortgage Rates
Loan Program Choices
Use our calculator to find out your estimated monthly payment in advance: Enter the loan amount, interest rate, and length of mortgage.
Try our Mortgage Payment Calculator
In fact, while one year ARMs currently offer tempting introductory rates averaging 5.59%, most experts recommend avoiding them, because you could easily find yourself facing sharply higher payments in the near future, even if interest rates don't rise. Why? Well, after the introductory rate expires, ARMs are typically pegged to the one year Treasury rate (recently 5.25%) plus 2.75 percentage points, with increases of as much as two points a year. Assuming interest rates don't change, you would pay 7.59% in the second year (the full two point increase) and 8% in the third year.
There are certain cases, however, where an ARM makes sense. If you are fairly certain you'll be moving within five years, you can save some money -- and avoid rising payments -- with a five year ARM, recently averaging 6.62%. Such loans offer a fixed rate for five years and adjust annually thereafter.
- How to Get Approved for an FHA Loan despite Bad Credit
- 3 Factors that Can Negatively Affect Your Mortgage Application
- Alternatives to Getting a 2nd Mortgage
- What Lenders Don't Reveal About Home Equity Loans
- 3 Warning Signs of Loan Modification Scams
- Low Down Payment Loan Qualification
- 3 Reasons Banks Reject Short Sales
- 3 Common Short Sale Mistakes
- What To Do When Mortgages Default