Adjustable Rate Mortgage
An adjustable rate mortgage (ARM), is a loan in which the interest rate varies according to a predetermined schedule. The initial interest rate will be fixed for an allotted period of time, after which it is reset periodically.
For example, a 5/1 ARM locks in the current interest rate for five years. After that, however, the rate for that particular product will change based on a predetermined index + margin with a cap. ARMs could start with better interest rates than fixed-rate mortgages, in order to compensate the borrower for the risk of future interest rate fluctuation. If you only plan to live in your new home for a few years, this could be a helpful option.
Benefits of an Adjustable Rate Mortgage:
- Potential to lock in a low interest rate and, if needed, sell your home before it rises
- Could offer lower interest rates than fixed-rate loans
- Rate adjustments could have caps to keep them from going too high
- Rates could possibly go down, saving you money
What you Need:
- Your driver’s license
- Your social security card
- Payment stubs for the past month
- Contact information for your landlord
- Copies of your past two tax returns if you are employed
- Copies of your past three tax returns if you are self employed
- An accounting of regular monthly bills, including account numbers
- A profit and loss statement for the current year if you run a business
- Three months of statements for all of your savings and investment accounts
Additional documentation may be requested.