At Nutter, we offer a variety of mortgage programs to suit each homeowner’s specific needs. In choosing which type of mortgage is best for you, one of the most important features to consider is the type of interest rate that will be used - a fixed rate or an adjustable rate.
Fixed Rate is just what the name implies - the interest rate for your monthly principal and interest payment (P&I) remains the same for the duration of your loan. With predictable monthly payments a fixed rate mortgage offers you consistency - giving you and your budget peace of mind.
Adjustable Rate Mortgages (ARMs) are 30-year loans in which the borrower makes an initial monthly principal & interest payment (P&I) for a period of 1, 3, 5, 7, or 10 years, depending on which ARM term option you choose. The interest rate during this initial period is usually lower than that of a fixed rate loan, saving you thousands and significantly reducing the cost of your mortgage - which is one of the many benefits of choosing an ARM.
At the end of the 1, 3, 5, 7, or 10-year period, your rate “adjusts” up or down each year thereafter based on market conditions. Each year, the amount of your interest rate is determined by adding the Index (e.g., 1-year LIBOR rate) plus a Margin (e.g., 2% or 2.25%).
ARMs are usually named by the length of time the interest rate remains fixed and how often the interest rate is subject to adjust thereafter. For example, a 5/1 ARM, the 5 represents the initial 5-year period your interest rate remains fixed, while the 1 shows that the interest rate is subject to adjust once per year thereafter.
What happens if interest rates start to increase?
Fortunately, ARMs are capped - giving you some built-in protection by limiting how much your interest rate can go up or down each year (2% for Conventional ARMs, 1% for FHA/VA ARMs), and over the life of the loan (6% for Conventional ARMs, 5% for FHA/VA ARMs).
Calculate how much money is available from your home using our Reverse Mortgage Calculator.