Homeowners are no strangers to decision making. From location to paint colors, buying a new home means choosing between many options!

Even your financing comes with decisions. When you’re buying your home with a mortgage loan, you have two choices: a fixed rate or an adjustable rate.

Woman at new home with a golden retriever dog

Unlike traditional mortgages that have one interest rate over the life of the loan, adjustable rate mortgages (known as an ARMs) have two periods: a fixed period and an adjustable period.  These home loans begin with an initial fixed interest rate that later adjusts based on the market.

These loans are identified (3-year ARM, for example) by the length of time the interest rate remains fixed and how often the interest rate is subject to adjustment afterwards. At INB, your initial period of fixed interest can be three, five or seven years, with an adjustment each year following that initial period.

Why is an ARM a great option for some homeowners?

ARMs typically start with a lower interest rate than fixed rate mortgages, giving you the lowest possible interest rate starting out.

Of course, ARMs can be more expensive following the adjustment period if rates go up. However, that’s not always the case. If market rates drop at the time of your adjustment, your interest rate could go back to your ARM’s original rate. 

When the initial period ends, your mortgage’s interest rate will reset to the current market interest rate (the index) plus an additional margin (an amount added to the index to determine your interest rate). At INB, we’ll let you know at least several months in advance of your adjustment period what your new rate will be. (It’s important to note that most ARMS will also typically offer a rate cap structure, which limits how much your rate can increase or decrease.)

With an ARM loan from INB, you’ll also have the choice to make payments over 15 or 30 years.

Who can benefit from an ARM?

If you’re a buyer who is planning to move before your rate adjusts, this mortgage option can be especially advantageous. Maybe you know you’ll only be in a certain city for a short time, or you plan to upgrade out of a “starter” home within a few years. If you sell your home before your interest rate begins to fluctuate, an ARM can actually give your budget more flexibility because of the initial, lower interest rate.

And an extra perk at INB is that there are no pre-payment penalties. You can refinance and or make bigger payments anytime you want after closing.

Find out if an ARM is a good option for you

Choosing an adjustable rate mortgage versus a fixed rate mortgage is just one consideration as you purchase your new home, but it’s an important one! Give me or any INB mortgage lender a call to discuss what option might be best for your personal situation.