Adjustable-Rate Mortgages (ARMs)

What are Adjustable-Rate Mortgages?

The adjustable-rate mortgage (ARM), also known as a variable-rate mortgage, is a loan with an interest rate that fluctuates over time depending on market conditions. These home loans can be used when fixed-rate loans are hard to acquire. With an ARM, a rise in interest rates results in higher monthly payments, while monthly payments fall if interest rates decrease.

If you’re looking to purchase a home, refinance, or cash-out refinance your current mortgage, Del Norte Credit Union offers a variety of adjustable-rate options that could come in handy.

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Hybrid ARMs

A hybrid ARM loan is becoming increasingly popular and features an interest rate that’s fixed for a set period and then floats afterward. The "hybrid" denotes the ARM's merger of both adjustable-rate and fixed-rate characteristics. Hybrid ARMs are defined by their initial fixed-rate and adjustable-rate periods. For instance, 3/1 reflects a loan with a 3-year initial fixed interest rate period and subsequent 1-year adjustment periods. The date that the mortgage shifts from a fixed-rate payment schedule to an adjusting one refers to as a reset date. The loan will then turn into a traditional loan and float over a specified index for the remaining 27 years of a 30-year mortgage.

At Del Norte Credit Union, we offer a unique 15/15 ARM loan, which is a conventional 30-year mortgage that’s fixed for 15 years, after which it will be subject to a one-time re-pricing. The loan is approved and serviced in-house by DNCU at any of our branches in Española, Santa Fe, White Rock, Los Alamos, and Northern New Mexico. The mortgage is not limited to Fannie Mae’s maximum loan amount – we offer jumbo loans as well.

We give our clients easy to understand loan terms and less paperwork.

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Rate Caps on ARMs

ARMs come with rate caps limiting how high the rate can be or how drastically the monthly payments can be altered. Periodic rate caps tend to limit interest rate change one year to the next, and lifetime rate caps limit changes over the lifetime of the loan. There are also payment caps that limit how much monthly mortgage payments can rise. As such, they affect the increase in dollars rather than percentage points.

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Why an ARM Might Be Right for You

Income increase - If your career path is likely to lead to a predictable or steady increase in income, planning for higher rates in the future may be the best option.

Brief ownership - You can take advantage of the lower initial rates if you’re planning to buy and resell a home relatively quickly or if you’re planning to refinance.

Low initial payments - The initial, fixed-rate period of a hybrid ARM offers you potential savings.

Long-term planning - You may be in a position to afford a higher initial rate when applying, but opting for an ARM gives you the opportunity to save during the initial fixed period.

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Why an ARM Might Be Wrong for You

Payments may rise - An increase in the interest rates means your payments could rise after the adjustable period kicks in. It could be tough if you're not in a position to afford larger payments.

Things don’t go as planned - With ARMs, it helps to plan ahead if interest rates begin to rise. But even with a lot of planning, it may be harder to sell or refinance when you want to.

Get in Touch with Us Today

If you’re searching for the best adjustable-rate mortgage in New Mexico, speak with one of DNCU’s team members to learn more about adjustable-rate mortgage loans. When you’re ready to get started, you can trust our team to help you make this big decision. We're committed to offering flexible options and superior service to help you reach your home ownership goals. Ready to get started? Start the process online.

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