Learn About Adjustable-Rate Mortgages
Learn About Adjustable-Rate Mortgages
Searching for a new home but unsure which mortgage option is right for you? An Adjustable-Rate Mortgage (ARM) might be worth considering. At NEXA Mortgage Loans, we often recommend ARMs to buyers who want to make the most of their purchasing power in today’s market.
What is an Adjustable-Rate Mortgage loan?
An Adjustable-Rate Mortgage (ARM) is a type of home loan with an interest rate that can adjust over time based on market conditions. ARMs typically start with a lower initial interest rate compared to fixed-rate mortgages, which means lower monthly payments at the beginning—giving you increased buying power upfront.
Who qualifies for an Adjustable-Rate Mortgage?
ARMs are a great option for homebuyers who plan to stay in their home for a shorter period, as they benefit from a fixed, lower interest rate during the initial term.
To qualify for an Adjustable-Rate Mortgage, you’ll typically need:
A down payment of at least 3% to 5%
A minimum FICO® Score between 580 and 620
A debt-to-income (DTI) ratio no higher than 50%
In some cases, lenders may require a more established credit history, a FICO® Score of 660 or higher, and a larger down payment—often 10% or more—for better loan terms.
What are the benefits of an Adjustable-Rate Mortgage?
The lower introductory interest rate of an ARM can result in reduced monthly payments, making it an excellent choice for buyers looking to manage their monthly expenses more effectively. It’s especially beneficial for those who don’t plan to stay in their home long-term, as they can enjoy the lower rate during their time in the home.
Additionally, most adjustable-rate mortgages come with rate adjustment caps, which limit how much the interest rate can increase in a given year—providing some protection from sudden or significant payment increases.
How often can my interest rate change with an Adjustable Rate Mortgage?
The frequency of interest rate changes on an ARM depends on the specific terms of your loan. Some may adjust annually, while others could change as frequently as monthly. However, the most common adjustment schedule is every six months.
At NEXA Mortgage, we can help find the perfect ARM for you and your specific needs. Contact us today!
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