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5 Year Adjustable Rate Mortgage

Overview

What is 5 Year Adjustable Rate Mortgage?

An adjustable rate mortgage popularly known as ARM is a home loan where interest rates can change during the life of the loan. It is different from fixed rate mortgage where interest rates are fixed; adjustable mortgage rates may increase or decrease depending on the index. With a 5 year adjustable rate mortgage, interest rates are fixed for first five years called initial interest rate, and then the interest rates are adjusted every five years.

Amongst the most common indices are the rates on 1-year constant-maturity Treasury (CMT) securities, the London Interbank Offered Rate (LIBOR), and the Cost of Funds Index (COFI).

Home owners who are looking for shorter home loans can take out a 5 year adjustable mortgage. It's more affordable for them because a 5 year adjustable mortgage doesn't attract high mortgage rates.

However, an adjustable rate mortgage is deemed as a risky home loan; fluctuation in interest rates can have a significant impact on your monthly payment.

Benefits

What are the benefits of getting a 5 Year Adjustable?

If you are going to stay in your home for less than seven years, 5 year adjustable home loan is a good option for you. The reason people prefer ARM over fixed rate home loan is the difference in the rates. You can save a lot of money in the form of low mortgage rates by entering a 5 year adjustable rate mortgage.

With an adjustable rate mortgage, you can qualify for a bigger loan amount and buy a house with more value. Also, if you are planning to relocate after few years or start a family, an adjustable rate home loan is right for you since it helps you free up some cash in the beginning with its low initial rate. Even when the rates are adjusted after five years, new rates will be less compared to a fixed rate mortgage.

Eligibility

Who qualifies for a 5 Year Adjustable?

People who have a stable job and income can get approved for a 5 year adjustable rate mortgage.

In order to make an informed decision about a mortgage, it's important to have a plan. Before taking out an adjustable rate mortgage, make up your mind what you wish to do with the property. If home ownership is on your mind, but you don't want a home loan of big duration, 5 year adjustable rate mortgage is a good pick.

You need to look around for banks or mortgage lenders who are willing to offer you the best rate on 5 year adjustable rate mortgage. Learn about current interest rates and what causes them to change so that you have some idea how they can have an effect on your monthly payment. Only after studying all the factors you should make a decision of getting a 5 year adjustable rate mortgage.