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Is a 5/5 ARM right for you?

Authored By: BCCU on 7/17/2014

What is an ARM?

Adjustable Rate Mortgage (ARM) is an important term, especially if you are in the market to buy a new home.

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ARM Definition: a mortgage having an interest rate which is usually initially lower than that of a mortgage with a fixed rate, but is adjusted periodically.

Bellwether’s 5/5 ARM is unique because it is a variable rate mortgage with longer periods of stability. Most ARMs have an initial term, but then switch to adjusting every year. Bellwether's 5/5 ARM rate is set at the start and stays at that rate for the first 5 years, then adjusts every 5 years. Our 5/5 is more stable than a 3/1 or 5/1 ARM which adjust annually after the first period.

Understanding the Rate System

The most appealing feature to the 5/5 ARM is that the rate only fluctuates every 5 years. As with all ARM products there are limits, and the rates cannot continue to fluctuate past a certain point. These limits are called caps. At Bellwether Community Credit Union the 5/5 has 2/2/5 caps.

  1. Initial Adjustment Cap
  2. Periodic Adjustment Cap
  3. Lifetime Cap

The initial adjustment cap is the amount the rate can change up or down at the first adjustment period. With the 5/5 ARM this cap is 2%.

The periodic adjustment cap is the maximum the rate could change up or down in subsequent adjustment periods. With the 5/5 ARM this cap is every 5 years up to 2%.

The lifetime cap is the maximum percentage that the rate can change over the life of the loan. With the 5/5 ARM the maximum percentage is 5%.

Why Bellwether’s 5/5 ARM is perfect for you

Bankrate recently posted their “Top 10 Tips for Mortgage Borrowers in 2014” and an Adjustable Rate Mortgage landed on the list. The average family moves every 7 years. If you are one of these families, a 5/5 ARM would be a great option because your rate would only be subject to change once in that time frame and only by 2% maximum. This allows you to plan for that “worst case scenario.” ARMs are also perfect for:

  • First time home buyers
  • Families planning to relocate within the foreseeable future
  • Refinancing your ARM or Fixed Rate Mortgage

If you determine that a 5/5 ARM is right for you, check our current rates and find out more!

Sources:

Lending Tree

Realtor.com

Merriam-Webster



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