As interest rates are climbing I’ve been getting questions from prospective borrowers if now is a good time to look at Adjustable Rate Mortgages.
Even though there is uncertainty as to how high interest rates will go, most Adjustable Rate Mortgages are locked for a period of time. Typical lock periods are 5, 7, or 10 years. That means that the interest rate will stay locked at that initial rate for that period of time and then annually on the anniversary date of the loan, the rate may/will change to whatever the Index is plus the margin determined at the time the loan was opened.
For instance, the common index used for these loans is the Secured Overnight Financing Rate (SOFR) or the Treasury Index. The lender will determine what the margin is based on the borrower’s qualifications. At the time the rate is set to adjust, the lender will use that day’s index rate and add the margin and that will be the borrower’s new rate for the next fixed period of time per the loan agreement. Most cases it’s one year.
Recently, the ARM rates have been slightly better than the 30 year fixed rate so we may just see an uptick in this mortgage option since the fixed rates and house prices are still rising.
Suggestion – If you are considering an ARM, calculate the difference in payment between that loan and the fixed rate loan program. Keep in mind that we can’t predict where rates will be when the ARM rate is set to adjust but if you saved more money in your payment than what it would cost to refinance that loan it may be worth it.
And if you have any questions regarding this or any financing options, please feel free to contact me at 772-837-9000.