Adjustable-Rate Mortgages (ARMs) Loans

What are Adjustable-Rate Mortgages (ARMs)?

Adjustable-Rate Mortgages (ARMs) are a type of home loan where the interest rate fluctuates after an initial fixed period. Typically, ARMs offer a lower fixed interest rate for a set number of years—such as 5, 7, or 10—before transitioning to a variable rate that adjusts periodically based on market conditions. ARMs can be a great option for buyers who plan to sell or refinance before the fixed-rate period ends or expect their income to increase in the future.

Are ARMs Right for You?

ARMs are ideal for homebuyers who plan to move, sell, or refinance within the initial fixed-rate period or those who want a lower interest rate upfront. If you anticipate an increase in your income or don’t expect to stay in your home long-term, an ARM could provide significant savings compared to a fixed-rate mortgage. ARMs are best suited for financially stable borrowers who can handle potential rate increases after the initial period.

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Eligibility Requirements

To qualify for an Adjustable-Rate Mortgage (ARM), you must typically meet the following criteria:

Minimum Credit Score

A credit score of at least 620 is usually required, though higher scores may qualify for better terms.

Down Payment

A down payment of 5% to 20% is typically required, depending on the lender and loan program.

Debt-to-Income Ratio

Most lenders prefer a debt-to-income (DTI) ratio of no more than 43%, though some may allow exceptions based on other factors.

Stable Employment and Income

Borrowers must demonstrate a stable income and employment history to ensure they can afford potential increases in their mortgage payments.

Loan Type

ARMs are available for primary residences, second homes, and investment properties, with different terms depending on the property type.

ARMs Loans

Numbers at a Glance

Here’s a quick overview of key numbers associated with this type of loans

Minimum Credit Score

620

Varies by lender

Down Payment

5% to 20%

Varies by loan type

Maximum DTI Ratio

43%

Varies by lender

Loan Term

30 Years

Fixed periods of 5, 7, or 10 years

Upfront Mortgage Insurance Premium (UFMIP)

None

May apply to FHA ARMs

Annual Mortgage Insurance Premium (MIP)

None

May apply to FHA ARMs if down payment is less than 20%

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Benefits of ARMs Loans

Lower Initial Interest Rates

ARMs typically offer lower interest rates during the initial fixed period, making your monthly payments more affordable at the start of your loan.

Flexible Terms

ARMs come with a variety of initial fixed-rate periods (such as 5, 7, or 10 years), allowing you to choose the term that fits your needs.

Potential Savings

If you plan to sell or refinance before the variable rate period begins, you can save money by locking in a lower rate for the initial fixed period.

Rate Caps for Protection

ARMs often come with interest rate caps that limit how much the rate can increase over time, providing some protection against large payment jumps.

Not the Loan You're Looking for?

Check out other loan options

Ideal for borrowers with good credit, conventional loans offer competitive interest rates and flexible terms.

Available to veterans and active-duty service members, VA loans provide excellent terms with no down payment required.

Backed by the Federal Housing Administration, FHA loans are perfect for first-time homebuyers or those with less-than-perfect credit.

Designed for higher-priced homes, jumbo loans offer financing options above conventional loan limits.

Flexible loans for borrowers who don’t meet standard lending criteria are ideal for those with irregular income.

These government-backed loans are tailored for rural and suburban homebuyers, often with zero down payment.

Pay only the interest on your mortgage for a set period, ideal for buyers who expect an increase in income or future refinancing.

Enjoy the security of a consistent interest rate and stable monthly payments for the life of your loan.

Allows homeowners 62+ to access home equity without monthly payments, repaid when the home is sold or vacated.

Combines purchase and renovation costs into one loan, perfect for buyers looking to fix up a property.

You can always ask for advice from a mortgage loan expert.

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ARMs Loans FAQ's

What happens when the fixed-rate period ends?

Once the fixed-rate period ends, the interest rate on your ARM will adjust periodically based on the terms of your loan and the current market rates. These adjustments typically occur annually.

Are there caps on how much my interest rate can increase?

Yes, most ARMs have caps that limit how much the interest rate can increase in a single adjustment period and over the life of the loan, providing some protection against sharp increases.

Is an ARM a good option if I plan to stay in my home long-term?

If you plan to stay in your home for many years, an ARM may not be the best choice due to the uncertainty of future rate adjustments. A fixed-rate mortgage might offer more stability in that case.

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First Finance Lending will guide you with expert advice and personalized service to start your homeownership journey with the perfect loan program.