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Adjustable Rate Mortgages (ARM)
Here’s how an Adjustable Rate Mortgage – or ARM, for short – is different than a traditional mortgage…
An Adjustable-Rate Mortgage (ARM) could be the key to affording the home you truly want, especially in a competitive market. ARMs often start with a lower interest rate than fixed-rate mortgages, which means a lower monthly payment for the first few years of your loan. This can give you more purchasing power, allowing you to get more house for your money. With an ARM from UCCU, you can unlock the door to your dream home sooner than you might think.
We want to ensure you feel confident and secure in your home loan choice. That’s why our ARMs come with built-in protections, like rate inflation protection, to safeguard you from market volatility. We’ll work with you to find the right ARM for your situation and make sure you understand every aspect of your loan.
Fixed vs Adjustable Rates
A traditional mortgage comes with a fixed interest rate that never changes and an Adjustable Rate Mortgage* comes with a rate that’s guaranteed not to change for a certain number of years. After that, it changes to a variable rate that goes up and down, based on the market.
Protection You Can Trust
An ARM with UCCU comes with the peace of mind of knowing that your loan is safeguarded by policies that are designed to protect you, like UCCU’s Rate Inflation Protection.
More Home, Same Payment
An ARM comes with an initial rate that’s LOWER than a conventional mortgage. A lot lower. In fact, the average homeowner can get on average 10% MORE HOUSE with an ARM for the SAME PAYMENT as a conventional loan.**
Simply put, an Adjustable Rate Mortgage gives you more Purchase Power than a traditional mortgage. And that means more money you can put into your home, or back into your pocket.
Your Home Loan Partner for Life
Choosing a mortgage is one of the most significant financial decisions you’ll ever make, and who you choose to partner with matters. At UCCU, we’re not just a lender; we’re your neighbor. As a not-for-profit credit union, our primary commitment is to you!. We pour our earnings back into the credit union to provide you with better rates, lower fees, and educational resources designed to help you succeed financially. When you get a mortgage with UCCU, you can be confident you have a partner who is fully invested in your success.
Local Experts Who Understand Your Needs
Our mortgage loan officers live and work right here in Utah. We possess a deep understanding of the local housing market, including its unique opportunities and challenges. We take the time to listen to your goals and understand your financial picture, ensuring we can guide you to the perfect loan for your situation. Whether an ARM is the right fit or another one of our mortgage options is better suited for you, we’re here to provide clear, honest advice every step of the way.
Your Long-Term Homeownership Strategy
An ARM is a powerful tool that provides flexibility and buying power now, but it’s also part of a longer-term journey. A popular strategy for many homeowners is to enjoy the lower initial payments of an ARM and then refinance into a traditional fixed-rate mortgage before the initial term ends. This allows you to lock in a stable, predictable payment for the remainder of your loan’s life. Our team will be right here with you, ready to help you monitor the market and find the perfect moment to make the switch, ensuring your mortgage continues to serve your best interests for years to come.
Ready to explore your options or have questions about how an ARM can work for you? Connect with one of our friendly, experienced loan officers today. Let’s work together to open the door to your new home.
Home Affordability Tool
A tool to calculate how much home you can afford while you shop!
Go to contentFrequently Asked Questions
What is an adjustable-rate mortgage
- An ARM is a type of home loan with an interest rate that varies over time based on changes in a specific market benchmark (called the index).
- ARMs start with a lower, fixed “introductory” rate for a set period, after which the rate can increase or decrease periodically for the remainder of the loan term.
How does an adjustable-rate mortgage work?
- Fixed Period: The loan begins with a set period (e.g., 5, 7, or 10 years) during which the interest rate and monthly payment remain constant. This initial rate is usually lower than what a 30-year fixed-rate mortgage offers.
- Adjustment Period: Once the fixed period ends, the interest rate is recalculated at scheduled intervals (e.g., annually or every six months).
- Rate Formula: The new rate is determined by adding a set number of percentage points (the margin, which is fixed for the life of the loan) to a fluctuating market benchmark (the index).
- Rate Caps: To protect borrowers, ARMs include interest rate caps that limit how much the rate can increase per adjustment period and over the life of the loan.
What is a 5/1 adjustable rate mortgage / What is a 7/1 adjustable rate mortgage?
- These are the most common types of hybrid ARMs, where the two numbers refer to the duration of the fixed period and the adjustment frequency afterward:
- 5/1 ARM: The interest rate is fixed for the first 5 years, and then it adjusts once per year (the ‘1’) for the remainder of the loan term.
- 7/1 ARM: The interest rate is fixed for the first 7 years, and then it adjusts once per year (the ‘1’) for the remainder of the loan term.
- Other common terms include 10/1 (10 years fixed, adjusts annually) and 5/6-month (5 years fixed, adjusts every 6 months).
What is the maximum interest rate an ARM can reach?
- The maximum rate is determined by the Lifetime Adjustment Cap, which limits how much the interest rate can increase over the entire life of the loan from the initial rate. This cap is typically 5 or 6 percentage points above the initial rate (e.g., if you start at 4%, the lifetime cap might be 9% or 10%).
How often can the interest rate change on an adjustable rate mortgage?
- The frequency depends on the loan type: After the initial fixed period, rates typically adjust once a year (e.g., in a 5/1 or 7/1 ARM). Some ARMs adjust every six months (e.g., in a 5/6-month ARM).
When is an adjustable rate mortgage a better choice than a fixed-rate mortgage?
- Short-Term Ownership: If you plan to sell or refinance the home before the fixed-rate period expires (e.g., within 5 to 7 years), you benefit from the lower initial rate without facing the risk of rate increases.
- High-Rate Environment: If current fixed rates are high, an ARM provides a lower starting payment, allowing you to wait and refinance into a lower fixed rate later if the market improves.
- Anticipated Income Growth: If you are a young professional and expect your income to significantly increase before the rate adjusts, you may be comfortable taking the risk of a higher payment later.
*Adjustable Rate Mortgages (ARMs) have an initial fixed rate period of time and then change to a variable rate thereafter. Your Annual Percentage Rate (APR) may increase after the original fixed-rate period. Financing is subject to UCCU membership and underwriting criteria. Not every applicant will qualify. Property insurance is required. Some restrictions apply. Equal housing lender. NMLS # 407653. Insured by NCUA.
**10% more house is the average savings calculated on a $300,000 single-family residence comparing conversional rates to ARMs with rates as of 11/10/22 resulting in $189 per month savings on rate. Contact UCCU for details. Terms and rates may change at any time and without notice. Equal housing lender. NMLS # 407653. Insured by NCUA.
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