DECEMBER 12TH, 2018

10-Year Adjustable-Rate Mortgages (ARMs)

The interest rate as well as monthly payment of most Adjustable-Rate Mortgages change every year, every three years, every five years, seven years, and so forth depending on whichever program the consumer selects. The period between one rate change and the next change is called the “adjustment period”. Therefore, a loan with an adjustment period of Ten (10) Years is called a 10-Year ARM (aka 10/1 ARM), and the rate can change or adjust every year AFTER the initial 10 years for the remaining life of the loan and accordingly to whichever index the consumer and lender agree upon.

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A 10/1 ARM is perfect for the consumer who desires to have the predictability of low monthly payments for the first ten years of their mortgage. This option may also be good for consumers if they plan on either refinancing, moving, or selling their home after ten years. Another benefit is that if the consumer needs a an extended period to pay off debts, etc. before having to make larger payments on their mortgage. As with any Adjustable-Rate Mortgage plan, the initial interest rate will be lower than a fixed-rate mortgage plan. Consumers should keep in mind though that after that first ten years of lower payments, their payments can change, sometimes significantly. It is of utmost importance that consumers are able and financially prepared to pay their monthly payments accordingly to avoid potential foreclosure. Then, there is also the possibility to either sell, move, or refinance for a different adjustable-rate mortgage or even a fixed-rate mortgage AFTER the first ten years of the 10/1 ARM.

About 10-Year Adjustable Rate Mortgages

Are There Any Special Kind of Down Payment Requirements for a 10/1 ARM?
Varies depending on the consumer’s situation and lender, but one can typically expect a down payment of between 5%-10% of the purchase price of the home.

If Interest Rates Skyrocket After the Initial 10-Year Rate Period is Over, What Recourse Would a Consumer Have? A common dilemma with ARM loans. Consumers are advised to refinance or lock-in to a fixed-rate mortgage after the initial fixed rate period is concluded.

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Possible Pitfalls & Dangers of Adjustable Rate Mortgages

While an ARM may seem like a great idea at first when a consumer is shopping for a mortgage or refinance because the initial interest rates on ARMs are always lower than on fixed rate loans, there are other considerations. When interest rates were dropping, it looked like a good option even in the long term BUT today’s times are changing at this moment and the amount a consumer saves in the first few years could very easily be depleted when rates go up.

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