What Is A 5/1 Adjustable Rate Mortgage

The 5/5 ARM Is an Adjustable-Rate Mortgage for the Faint of Heart Last updated on August 1st, 2018 There’s a popular new loan in town that a lot of credit unions seem to be offering known as the "5/5 ARM," which essentially replaces the more aggressive 5/1 ARM that continues to be the mainstay at larger banks and lenders.

How a 5/1 ARM Mortgage Works. The term 5/1 ARM means that you will get five years of a fixed interest rate, followed by one-year increments of adjustable rates. This means that for the first five years of the mortgage, you are going to have the same interest rate and the same monthly mortgage payment.

Put simply, the 5/1 ARM is an adjustable-rate mortgage with a 30-year loan term that’s fixed for the first five years and adjustable for the remaining 25 years. So during years one through five, the interest rate never changes. If it starts at 4%, it remains at 4% for 60 months. Nothing to worry about there.

<span id="adjustable-rate-mortgage">adjustable rate mortgage</span> Calculations ‘ class=’alignleft’>When your loan adjusts, monthly payments can go up or down, depending on current rates. One common type of adjustable-rate mortgage is a 5/1 ARM.</p>
<p>A fixed-rate mortgage keeps the same interest rate for the life of the loan.. An ARM will be described in terms of two numbers, such as a "5/1.</p>
<p>For instance, a 5/1 ARM has a fixed rate for five years, and then its rate would reset once a year for the remaining 25 years of its term. The starting rate for a 5/1 ARM is generally about one percent lower than <span id="similar-30-year-fixed-rates">similar 30-year fixed rates</span>. Its <span id="interest-rate-adjustments-depend">interest rate adjustments depend</span> on several factors:</p>
<p><div id="schema-videoobject" class="video-container" style="clear:both"><iframe width="480" height="360" src="https://www.youtube.com/embed/jmS6Y9tm08k?rel=0&controls=0&showinfo=0" frameborder="0" allowfullscreen></iframe></div></p>
<p>For instance, the popular 5/1 ARM has an initial fixed rate for five years, and then rates adjust every year thereafter. To reduce the risk of major changes, ARMs typically put limits on the amount.</p>
<p><a href=5 1 Arm Rates Today APR for Jumbo Fixed Rate mortgages is based on a $484,350 loan with 80% loan-to-value and no prepaid interest. aprs for all other mortgages listed are based on a $100,000 loan with 80% loan-to-value and no prepaid interest. For all Adjustable Rate Mortgages the Rate may increase after closing. Mortgage insurance required if LTV exceeds 80%.Adjustable Rate Mortgage Arm An adjustable rate mortgage, called an ARM for short, is a mortgage with an interest rate that is linked to an economic index. The interest rate and your payments are periodically adjusted up or down as the index changes.

Bankrate.com provides FREE adjustable rate mortgage calculators and other ARM loan calculator tools to help consumers learn more about their mortgages.

On the other hand, with a 5/1 ARM, your initial interest rate will be fixed for a period of five years. Generally, the initial rate of a 5/1 ARM is lower than that of a 30-year fixed-rate mortgage, and is sometimes referred to as a "teaser" rate.