What is a 30 year arm mortgage?
by Mortgage Rates on Tuesday, November 2nd, 2010 | 4 Comments
-
Mortgage Info
-
Updates
-
Useful Links
-
-
Tags
2010 About article Auctions bank banks best Business buyers change Credit Debt Equity Financial First fixed Foreclosure From good Government Help Home house Housing interest Loan Loans Market more Mortgage Mortgages Need News options qualify Rate Rates refi refinance Refinancing should this Time variable would-
Meta
A 30 year ARM merely means that you have 30 years in which to pay off the amount of the mortgage. That’s the amortization time frame. However, the interest rate is not fixed. It is subject to change according to the terms laid down in the original document.
It will still adjust every year. The 30 year part means that when they compute your monthly payment, based on this year’s interest rate, they are basing the calculation on the idea of paying the loan back over 30 years.
In other words, if your interest rate is 5% this year, then your payment would be the same as a 30 year fixed at 5%. But, it will still adjust to current market rate again each year, changing your payment accordingly.
read your note it may adjust every 6 months or 1 time a year for the next 25 years
Check your original loan documents about your specific program. Your loan may allow for monthly adjustments or every 6 months, or every year. From your description of a 5/1 ARM looks like it was fixed for 5 years and now will adjust once a year on the anniversary date.
You should also check to see what the adjustment cap is. Typically ARMs have an upper/lower cap for the life of the loan and also a cap for each adjustment.
In that event, if the interest rate goes higher than the adjustment cap, you are not *required* to pay it, BUT it may get added on to the back end of the loan. If this is the case, you may find yourself getting into “negative amortization”. I recommend you avoid this at all costs.
Good luck.