Mortgage Market Insight Ep.26: What are some ARM mortgage types?

Last week we have talked about what is Adjustable Interest Rate Mortgage and how it is different from the fixed rate mortgages. As we know, for fixed rate mortgage, we have 15 and 30 year options. Then how about ARMs, what options and choices do we have?
Most of the ARM loans available today are actually “hybrid” loans. As you probably know, a hybrid is a combination of two different things, like a hybrid engine that is powered by both gas and electricity. Mortgage lenders can structure ARM loans however they want, as long as they meet federal lending laws. As a result, there are many different types of adjustable-rate mortgages in use today.
Well, normally the most common ARM type are:
• 7/1 ARM: This loan has a fixed interest rate for the first 7 years, and then adjusts annually after that.
• 5/1 ARM: Another hybrid loan structure. It holds a fixed rate for the first 5 years, and then adjusts annually.
• 1-year ARM: Fixed for the first year, annual rate adjustments after that.
In the case of a hybrid loan (defined above), the primary difference is the length of the initial fixed-rate period. Regardless of these differences, the adjustments typically occur once every year after the initial phase has expired.
Besides these difference, another thing you need to consider is whether you want to use conventional or FHA.
You see? Choosing an ARM is actually much more complex than what you thought.
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