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I have a confession to make - I am a mortgage nerd. I also love Adjustable Rate Mortgages! I know, I know... Most people see that term and run away as fast as possible. I get it, ARMs have had a rough past. However, today's ARM products are much different (and more regulated) than they used to be. For some people, they are a great option! Before I bore you with details, here's why: the initial rates for an ARM are usually lower than a 30 year fixed.

An Adjustable Rate Mortgage is a loan product that does not have a fixed interest rate for the life of the loan. Most ARMs have an initial fixed period and then adjust on a set schedule. For example, a 7/1 ARM (say it as 'a seven one ARM') has a rate that is fixed for 7 years and then adjusts every year thereafter. A 5/5 ARM is fixed for 5 years and then adjusts every 5 years.

Typically ARMs have caps on how much the rate can change both per adjustment and over the life of the loan. The caps are set as initial/periodic/lifetime. So a 5/1 ARM may have 2/2/5 caps. This means that the rate can adjust no more than 2% at the first adjustment, 2% at adjustments after that, but no more than 5% total over the life of the loan.

So, who could benefit from these types of mortgages? For one, people who don't plan to be in their home for the long run. If you are planning to be in your home for 10 years or less you could save a LOT of money by financing with an ARM. ARMs can also make sense for buyers with less than perfect credit. They can allow these buyers to lock in a lower rate for a few years while they get their credit score up and then refinance into a fixed mortgage.

If you'd like to know more please reach out! I'm always available to talk through home loan options and answer any questions you may have.


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