Adjustable-Rate Mortgage

Explore a Flexible Loan Option That Can Get You the Best Market Rate

About adjustable-rate mortgages

A Loan with Unique flexibility

Adjustable-rate mortgages, some times called variable mortages, are a unique mortgage option where your interest rate is adjusted over time based on several factors. In a traditional fixed-rate mortgage, you interest rate stays the same throughout the mortgage term. However, ARMs have a period at the start where the rate is the same, and then adjustment periods in the later life of the loan. These adjustments can be made at different intervals, sometimes annually or even monthly. 

To understand how these loans work, let’s take a look at a 5/1 ARM. For the first five years, your interest rate remains the same. After that five years, the rate is adjusted annually for the remaining duration of the loan. ARMs can be beneficial as if the market is favorable the interest rate you pay can go down. 

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To secure your adjustable-rate mortgage, it's imperative that you first seek pre-approval. Pre-approval allows you to to shop with confidence by estimating how much you'll be able to afford. It will also be a great time for your mortgage broker to help you determine if an ARM is the right financial decision for your needs. 

Now it's time to apply for your loan. Unlike pre-approval, getting approved for your loan is a longer and more in-depth process that touches every aspect of your financial health and history. 

It's time to find your dream home! Choosing a qualified realtor will help you make wise home-buying decisions. Once you have selected the perfect home, it's time to close your loan with the professional help of your Maryland mortgage brokers at Federal Hill Mortgage. 

understanding adjustable-rate mortgages

What you need to know about Adjustable-Rate Mortgages and how they're calculated

To understand how the adjustable rate is calculated, we need to break down indexes and margins. Once your fixed-rate period comes to a conclusion, you’ll move into the adjustable period for the loan’s duration. The adjustable-rate is calculated on two factors, the index and margin. Index serves as a representation of the general market conditions and is reffered to as the benchmark. The index is a fluid number that can change based off the market conditions, either raising or lowering your interest rate based off comparable interest rates market-wide. The margin on the other hand, is a set amount of interest, usually calculated in a few percentage points, that is agreed on with the lender when you sign the loan. This rate will not change from the initial rate agreed upon, and is added to the index to generate the full amount of interest you owe. 

 By understanding how the index and margin affect your ARM, you can make better decisions about your finances. Exploring with your brokers what is acceptable risk for you is an important step in determining if an ARM is the right option. 

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At Federal Hill Mortgage, we believe that effective, honest lending and brokerage services should be easy to access. We work with you to find the best conventional loan options to suit your needs.