Are you thinking about getting an adjustable rate mortgage (ARM), rather than a fixed rate home loan? If so, you might be wondering how often the interest rate of your ARM will change.
Ideally, you want to think about getting an ARM temporarily. A perfect scenario would be if you are planning to stay in your house for a few years, and then move out. The introductory period featuring a low, fixed rate might extend across the entirety or at least most of the time you’ll be in the home.
Another possibility would be to start out with an ARM, and then later refinance to a fixed rate mortgage after the introductory period should you find your rates ballooning.
But let’s say that you will have the ARM for a year or more after the introductory period expires. Will your rates adjust every year? Every few months? Every single month? How unpredictable will your expenses be?
How Often ARM Rates Are Adjusted?
Thankfully, adjustable rate mortgages do not feature frequent changes in interest rates. You will not find yourself in a situation where you have no idea each month what you will owe in interest for the next month.
Commonly, there will be an adjustment to the interest rate of an adjustable rate mortgage on an annual basis. So, for an entire year, a certain rate will apply. The next year, a new rate might apply.
There are some ARMs that do feature more frequent adjustments. You could have a new interest rate every six months.
Want an ARM which lets you keep a rate for longer without worrying about the next adjustment being right around the corner? There are some adjustable rate mortgage products which only adjust once every two or three years.
How Long Do Introductory Periods for ARMs Last?
Normally, the introductory period for an adjustable rate mortgage lasts for a few years—for example three years or five years.
During that period, you get to pay a low rate which is locked in until it ends. That rate might be lower than what you would pay on a fixed rate mortgage that originated during the same timeframe.
You should think about what your plans are for the next few years when you are shopping for a mortgage so that you can choose one which offers the introductory rate for as long as you need it.
So, if you think you’ll be in your home for up to five years, for example, but you might move in the next three, you probably would be better off choosing an ARM with a five-year introductory rate period than one with a three-year introductory rate period.
How Adjustment Timeframes Are Expressed for Adjustable Rate Mortgages
You can easily figure out how long the introductory rate for an adjustable rate mortgage will last as well as how frequently the interest rate will be adjusted thereafter.
Both are expressed in numbers with the following format:
# of years for the introductory rate / frequency of adjustments in years
So, for example:
- 3/1 year ARM: This refers to an adjustable rate mortgage which will have an introductory rate locked in for the three initial years. After that introductory period lapses, the rate will be adjusted once per year.
- 5/1 year ARM: This would be just like the type of adjustable rate mortgage discussed above, except that the introductory period will last for five years instead of just three.
- 3/2 year ARM: With this type of adjustable rate mortgage, you would have a three-year introductory period, after which the rate would be adjusted every other year.
- 3/3 year ARM: This would be like the product above with the same three-year introductory period. But instead of adjusting the rate every other year, it would be adjusted every third year.
We Can Connect You with the ARM That Is Right for You
Have additional questions about how adjustable rate mortgages work, or ready to apply for one with a rate change schedule that works for you? To schedule your consultation with American Pacific Mortgage, please call us today at (205) 495-0313.
