A 5 year ARM, also known as a 5/1 ARM, is one option being offered today by many mortgage companies. This particular loan has a fixed rate for the first five years and then changes once each year for the remaining life of the loan.
The benefit of a 5/1 arm is that it gives the borrower a much lower interest rate and payment initially. For example, as of today March 16, 2011, a 5/1 arm with many mortgage lenders has an interest rate of 2.75% compared to a 30 year fixed with an interest rate of 4.625%. For a loan of $250,000 the monthly payment on the 5/1 arm would be $265 less. For borrowers who are confident they will sell their home within that 5 year period, this kind of loan would be an ideal product. However, borrowers that are just looking to lower their payments may find this loan disastrous because after the 60th month the 5/1 arm can adjust by up to 5 percentage points! This is referred to as the 1st adjustment cap. Every 12 months after the initial adjustment, the loan will adjust again which is referred to as the periodic adjustment. Typically, the cap on this adjustment is less than the first adjustment cap. Many lenders set this at a maximum of 2 percentage points. The final term for the 5/1 arm is the lifetime adjustment cap. This is the amount that the interest rate can rise during the entire term of the mortgage, which is typically 30 years. Many times, this is equal to the initial adjustment cap, or 5 years. In other words, a 5/1 arm typically has the terms 5/2/5 (initial cap = 5%; periodic cap = 2%; lifetime cap = 5%). For example, a 5/1 arm that closes with an interest rate of 2.75% will remain fixed for the first 5 years. At the end of 5 years it can rise to a maximum of 7.75% but at no time during the term of the loan can it rise higher than 7.75%. If the interest rate rises to 5.00% after the initial adjustment, then in 12 months it can rise as high as 7.00% (2 percentage points).
Hiç yorum yok:
Yorum Gönder