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ARM Loans

Written by: Cecilia Sherrard/Mary Lou Call

ARM stands for Adjustable Rate Mortgage. There are various types of ARM products with the most common being the 1/1, 3/3, 5/1 and 7/1 ARM. The first number tells you the length of time the Rate will be locked. The second number indicates the length of the adjustment period after the initial rate lock period. For example, the 7/1 ARM has the rate locked for seven years or 84 months. Then it will adjust annually thereafter. ARMs can be amortized over 15, 20 or 30 year time periods which can allow for lower monthly payments. One fear that most consumers have is that the rate can adjust. However, most ARMs come with caps which are usually 2% per year or 6% over the life of the loan. This means, during the first adjustment period, the rate can't go up or down more than 2%. Let's look at the 7/1 ARM again. If the initial rate is 5.25%, then the rate can't go higher then 7.25% at the end of the initial rate lock period of seven years or 84 months.

ARM rates tend to be initially lower than fixed rate mortgages. If you plan on only being in your home for 7 to 10 years, lock in a 7/1 ARM and take advantage of the lower rate versus a 30 year fixed rate mortgage. Everyone's situation is different, but the average life of a mortgage loan ranges from 7 to 12 years because people often move or refinance their loan. So, why not enjoy the lower rate?

For more information on ARM products, contact Mary Lou Call at First Federal of Lakewood. She can be reached at 216-529-5637. Or for more real estate information and articles visit http://www.youshouldown.com

About the author:

Cecilia Sherrard is a full time dedicated Realtor in Northeast Ohio. With years of experience and knowledge, she has maintained a multi-million dollar producer status. Servicing areas such as: Westlake, Lakewood, North Olmsted, Rocky River, Cleveland, Brook Park, Parma, etc. Visit her website at http://www.youshouldown.com


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