When choosing a mortgage, you have the option to get a fixed-rate or adjustable-rate mortgage, also referred to as an “ARM”. While fixed-rate mortgages offer the benefit of keeping the same interest rate for the life of the loan, adjustable-rate mortgages have rates that can fluctuate over the term of the loan. We’ve provided the information below to give you a little more insight as to how an ARM works, and want you to know we’re here to answer questions you may have about your ARM.

Frequently Asked Questions

An Adjustable Rate Mortgage (ARM) is a type of mortgage in which the interest rate will adjust up or down over time based on economic conditions. For the first time in many years, we are seeing a rise in overall mortgage rates. This will affect members seeking a new mortgage and those who may already have an ARM. We strive to make sure our members know their options and how to best prepare for any potential changes in rate or payments.

How do Adjustable Rate Mortgages work?

1. For a period of time, the interest rate associated with your mortgage is constant.
2. When the initial period ends, the interest rate will adjust according to a predetermined calculation. Members with an ARM loan are notified at least 210 days before their first adjustment and again at least 60 days prior to their payment change. 
3. After the initial adjustment, your rate will continue to adjust using the same predetermined calculation.

What is the predetermined calculation for interest rate adjustments?

The interest rate for an ARM varies depending on the terms of your mortgage. This is typically the sum of an index value plus an additional margin. An index value is a rate tied to a specific benchmark like a 1 Year Treasury Bond. A margin is a predetermined fixed percentage added to the index to compute the overall interest rate. An ARM also has protection features called caps that limit how much the rate will adjust at any time. They also have a maximum rate adjustment during the life of the mortgage.

My interest rate is adjusting and my payment is changing, what are my options?

You could:

1. Do nothing and revisit your mortgage rate at another time.
2. Discuss refinancing your loan into a new ARM with today's initial rates.
3. Discuss refinancing your loan to a new Fixed Rate Loan at today's fixed rate.

Before I decide, what else should I consider?

1. How long do you plan on living in your current home?
2. How does the interest rate adjustment and monthly payment amount impact your monthly bills?

We understand that there are various mortgage options and navigating through them can be complex. Our Mortgage Advisors have your best interest in mind and are here to assist you with your questions. Give us a call today at 540-946-3200 and we will gladly discuss your options.