For the buyer who's on the move or expects their income to increase, an adjustable rate mortgage (ARM) may be the answer. An ARM starts out with a lower interest rate and mortgage payment than with a fixed-rate loan. The start rate and qualifying rate for an ARM may usually be around two percent below the current fixed rate. Because ARMs offer lower initial interest rates, you may be able to qualify for a larger mortgage amount.

With an adjustable rate mortgage, the interest rate can move either up or down, depending on where interest rates in general are going. Interest rate changes are tied to a financial index, such as the U.S. Treasury Bill. ARMs do offer protection. Most ARMs cannot go up or down more than a certain percentage (usually one to two percent) annually. Over the life of the loan, the interest rate can only change a total of a maximum set percentage (usually 5 or 6 percent). This protection is called "caps."

Terms on ARMs vary. You may choose a 1/1 term, which means the loan adjusts annually, either up or down, but offers one of the lowest initial starting interest rate. Other terms are available, such as a 3/1, 5/1 or 7/1 ARM, which means the interest rate is fixed at a lower rate for the first three, five or seven years and then adjusts every year thereafter according to the term. Most ARMs are based on a 30-year amortization.

A myriad of adjustable rate programs are available with a variety of terms and options to suit your needs. To discuss all of your options, please contact a DKMC Mortgage Planner for complete details.