In an ever-changing economy, Adjustable-Rate Loans may be the choice for you. An Adjustable-Rate loan or ARM is a mortgage loan that starts at an initial fixed interest rate for a set period of time and then adjusts according to market conditions. ARMs are ideal for those who are looking to stretch their monthly budgets further, especially during a time when interest rates are going up.
Types of ARMs
Beacon Credit Union offers several mortgage loans that fit a wide range of needs, including four Adjustable-Rate Mortgages loans.
- 3/1 ARM
- 5/1 ARM
- 7/1 ARM
- 10/1 ARM
The first number in each ARM loan refers to the number of years that the initial rate is locked in for. For example, if you choose a 3/1 ARM, your initial fixed rate is locked in for three years. The second number in each ARM is the frequency that the rate can adjust. The 1 in the 3/1 ARM example shows the rate can adjust with the index rate every year thereafter.
Top Three Reasons to get an ARM
- Short-term Mortgage. ARMs are ideal for those who are living in their home for a short amount of time. This could include “starter homes,” flipping houses, or even having to relocate for work. With ARM loans you can lock in a lower rate and term and before your loan rate changes you could be moving into your next home.
- Lower Fixed Initial Rates. ARM’s typically have a lower introductory period, often lower than the going rate of a 30-year fixed mortgage. Not only do you lock in a lower interest rate, but this also means a lower monthly payment. Your rates will be adjusted once the fixed-rate period ends. The new rate will reflect market conditions and may be higher or lower than your existing ARM rate. If the rate goes up, there are built in caps that act as a ceiling, so your rate and payment will never go higher than the specified amount.
- Build Equity in your Home. With lower interest rates, a higher percentage of your monthly payment will go towards the principal of your loan, allowing you to pay down your principal faster and build equity in your home.
How do I qualify for an Adjustable-Rate Loan?
In order to qualify for an ARM, all borrowers will need the following:
- Credit score of 680 or higher
- Down payment (or equity if refinancing)
- Proof of income (paystubs/pensions/SSI, covering most recent 1-month period)
- W-2s/1099, etc. (most recent 2-years)
- Credit Union/Bank statements (most recent 2-months)
- Retirement Statement (most recent quarter)
- Homeowner Insurance
- Real Estate Taxes
- ID, State License
Possible additional financial verification:
- If self-employed, Federal Tax Returns (personal, most recent 2-years, and business, if applicable)
- List of current debts (auto, alimony, credit card, etc.)
If Purchase Transaction:
- Purchase and Sales contract
- Ernest Money Deposit
- Rent Payment History (most recent 12-month period)
- Gift letter and Proof of Transfer of Funds (if applicable)
Read this article for more information on how to get pre-approved for a mortgage.
Have questions? Our knowledgeable Mortgage Lending Team can assist you.
*Adjustable Rate Mortgages are variable, and your Annual Percentage Rate (APR) may increase or decrease after the original fixed-rate period. The First Adjusted Payments displayed are based on the current Constant Maturity Treasury (CMT) index, plus the margin (fully indexed rate) as of the stated effective date rounded to nearest 1/8th of one percent. All loans subject to credit approval.
Rates are subject to change. Rates are based on creditworthiness, loan-to-value (LTV), occupancy and loan purpose, so your rate and terms may differ. All loans subject to credit approval. Rates quoted require a loan origination fee of 0.50%.