The stability of a conventional fixed-rate mortgage works well for many homeowners who value a predictable monthly payment. But an adjustable rate mortgage could be a better choice for you – especially if you are planning to move within five years.
Benefits of an Adjustable Rate Mortgage
An adjustable-rate mortgage is an alternative to a fixed-rate mortgage loan. This loan type is an option for borrowers who would like to take advantage of a lower rate while they are living in the home. Typical benefits of an Adjustable Rate Mortgage include:
- Lower initial interest rate
- Lower initial monthly mortgage payment
- Ability to afford more house
- Possible to pay less in return, in favorable market conditions
How Are Adjustable Rates Calculated?
St. Louis homebuyers with an Adjustable Rate Mortgage (ARM) can take advantage of an “introductory” lower interest rate than that of a fixed rate loan. The loan proceeds at this rate for an agreed-upon period of time. Once that introductory period expires, the interest rate change will "reset" – moves up or down in line with the movement of an “index” (major interest rate). Following this movement, you may have a lower interest rate or a higher interest rate on your mortgage loan.
Hybrid ARMs are signified by the fractions in their titles – 3/6, 5/6, 7/6, 10/6. The first digit tells you the number of years with the introductory rate adjustment. The second digit reveals the length of the adjustment period once it becomes a variable rate. For instance, on a 5/6 rate, the first reset takes place after five years. The next reset can take place six months later, and every six months after that, until the end of the loan term.
Who Qualifies For An Adjustable Rate Mortgage?
There are a number of borrowers well suited to a St. Louis Adjustable Rate Mortgage. This loan is a particularly good option if you think you, as a borrower, will move during the introductory period – a starter home, a short-term job transfer, and so on. This will allow you to capitalize on the low initial rate and a lower monthly payment without the potential long-term adjustments. Successful Adjustable Rate Mortgage applicants of an ARM loan typically have some of the following characteristics:
- An income that can handle the maximum rate and monthly payment
- Steady upward movement of income reasonably expected over the coming years
- A low debt load that would not interfere with payments
- Short-term ownership
Recent changes to St. Louis Adjustable Rate Mortgages protect borrowers who take this option. These home loans have an adjustment cap and a lifetime cap, which limit the amount that an interest rate can adjust – in one adjustment period and over the loan term, respectively. There are also a series of disclosures that the lender must make, such as maximum interest rate and payment.
Apply For a St. Louis Adjustable Rate Mortgage
If you are ready to purchase a home, Midwest BankCentre makes it easy to apply for a St. Louis Adjustable Rate Mortgage online, or you can contact a mortgage specialist today. Our St. Louis Adjustable Rate Mortgages offer competitive rates and clear terms. Our mortgage lenders will discuss your unique needs and determine whether an adjustable-rate mortgage is right for you.
