Utah Adjustable-Rate Loans

Providing Flexibility for Homeowners

An adjustable-rate mortgage (ARM) is a loan term option with interest rates that can change periodically after the initial fixed-rate period. After this introductory period, monthly payments are susceptible to increases or decreases based on market fluctuations, which can also affect the monthly payment.

Adjustable-Rate Mortgage Highlights

An ARM might be the right option for you if you plan on moving within 7 years since they feature lower introductory interest rates. If interest rates are expected to fall, a homeowner could potentially reduce their monthly payments with the lowered interest rates. Highlights of an adjustable-rate mortgage include:

  • Lower initial monthly payments
  • Possibility to qualify for higher loan amounts
  • Rates and Payments may decrease based on the index rate

What is an Adjustable-Rate Mortgage (ARM)?

  • An ARM is a type of mortgage where the interest rate is fixed for a specified period of time, usually ranging from 1 month to 10 years.
  • The most common types of ARMs are 3/1, 5/1, 7/1, and 10/1. In these mortgages, the interest rate is fixed for three, five, seven, or 10
    years, respectively.
  • ARMs typically start with a lower interest rate than fixed rate loans, but the rate will adjust either up or down (depending on how the
    index has moved) once the fixed-rate period expires.
  • Interest-only ARMs allow the borrower to pay just the interest for a specified number of years. After this initial period, the payment will
    adjust to include both principal and interest.

Important ARM Terms

Index is the measure of interest rates; as an index increases, rates can increase and cause higher monthly payments. The most
commonly used index is the London Interbank Offered Rates (LIBOR).

  • Margins are percentage points that are added to the index rate and are constant over the life of the loan.
  • Fully indexed rate is the margin + the index. For example: if the index is 3.5% and the margin is 2.25%, then the fully indexed rate is
    5.75%.
  • An interest rate cap limits the amount the interest rate can adjust either up or down from one adjustment period to the next.
  • A lifetime cap limits the interest rate increase over the life of the loan and protects the borrower against a large increase.

Do I Qualify?

There's a lot that goes into qualifying for a home loan. Factors such as credit score, debt, income and more play a huge part of the decision making process. Consider taking my questionnaire and we'll discuss your mortgage options.

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