An adjustable rate mortgage or ARM for short is a mortgage that will have a fluctuating payment. There are still a number of ARM loans being done in the state of Utah; 3/1, 5/1, 7/1 adjustable rate mortgages are available through Fink and McGregor. Many who have short term housing conditions or are planning to sell their home within a few years may all wish to consider this type of loan. Those who are also looking for a jumbo loan may also consider these adjustable terms.

The 3/1 ARM Loan

The 3/1 adjustable rate mortgage was designed for those buyers looking to re-establish credit or for those who plan to sell their home within three years. The 3/1 ARM was presented often prior to 2007, simply because many subprime loans were being done for families who had recently been discharged from a bankruptcy, or had ended a bad streak of slow payment on their mortgage or other debts. The borrower would get a lower interest for the first three years of the loan, and the following month the loan would begin to adjust. At this time, the borrower could refinance the loan with better credit, and refinance into a low, fixed interest rate. The challenge with the ARM loan is that the interest rate will fluctuate with the market, and could go up or down. When taking an ARM loan, the lender should always tell you if there is a cap on how many times and how much this loan can adjust.

The 5/1 and 7/1 ARM Loan

The 5/1 and 7/1 ARM loans are very similar to the 3/1 ARM loan in that they also have a fixed low interest rate for a set number of years.  After the five or seven year period, the loan will begin to adjust, and is generally based on one index plus a margin. Borrowers just need to decide if they want two more years of paying lower interest versus taking the five year option.

How Do I Know Which One is Right for Me?

Selecting which ARM loan is best for you shouldn’t have to be a chore, but there are a few things to make it easier for you. The first thing to remember is that the shorter the term, the lower the initial interest rate will be. Traditionally, these loans were vastly different in terms of interest rates, but with our current economy the rates are nearly the same on the three year and the five year loans.  Therefore, selecting the three year option has been less popular. There is a ten year option, but with rates hovering near the 30 year fixed, so it is really up to the family to consider whether they just want to stick with a fixed rate, or choose another adjustable rate program.

Interest rates are unpredictable in this market, and each family has a different financial picture, so it’s best to look at the bigger picture and then decide what saves each of us the most amount of money.