You probably are aware that an adjustable rate mortgage, or “ARM,” is a type of home loan with an adjustable interest rate. Unlike a fixed mortgage rate, an adjustable interest rate fluctuates along with market conditions. But did you know there are several types of ARMs?
A “hybrid” ARM is an adjustable rate mortgage that has a fixed rate during an initial introductory period. After the first several years elapse, the rate then changes over to one that is adjustable.
You know what to expect from a hybrid ARM based on the numbers used to describe it. Here is a simple example.
A 5/1 ARM has a fixed rate for the first 5 years. Then, the rate adjusts every 1 year.
This type of adjustable rate mortgage is also known simply as an “I-O” ARM. When you take out this type of home loan, for the initial few years, you only have to make payments on interest. After the introductory period is over, you need to start submitting payments on the interest and principal.
Depending on the product, the interest rate might be fixed or adjustable during the introductory period. So, interest-only ARMs may be hybrid ARMs as well.
One more type of ARM to be aware of is what is known as a “payment-only” ARM. With this type of mortgage, you are given multiple options for how you will pay on the loan.
You can either immediately pay on both the principal and interest, or you can treat it like an interest-only ARM in the beginning. There may also be an option that allows you to submit an even smaller payment starting out.
Be aware, however, that if you opt for this last payment option, any interest you do not pay on the month it is due will be tacked onto your mortgage principal. You will need to pay it eventually. The longer it takes to pay off your mortgage principal, the more your interest will accumulate over the years ahead.
Learn More About ARMs With Premier Lending Corp
If you want to find out more about adjustable rate mortgages, Premier Lending Corp can explain how they work during your consultation. Give us a call today at 954-840-8811. We can help you apply for an adjustable rate mortgage in Cooper City or anywhere throughout Florida.