A 10/6 ARM means that you'll pay a fixed interest rate for 10 years, then the rate will adjust every six months. A 7/1 ARM, on the other hand, means you'll get a fixed interest rate for the first seven years, then the rate will adjust every year.
Yes, you can refinance an adjustable-rate mortgage with a new adjustable-rate mortgage. You'll want to compare the rate, terms, and costs of a new ARM against your existing ARM and decide if refinancing makes sense for you. Last reviewed and updated June 2023 by Freedom Mortgage Corporation.
If you plan to stay in your home for a long time, a 30-year fixed mortgage is the better option. While a 10/1 ARM may offer initial savings, the potential for higher interest rates in the future could outweigh these savings if you end up keeping the loan for an extended period.
However, the potential for interest rate changes, less stability and the possibility of increased monthly payments are drawbacks to consider. Ultimately, borrowers should carefully evaluate their financial situation, risk tolerance and future plans to determine if an ARM is the right choice for their needs.
ARMs are also not the best choice for those who prefer the certainty of a reliable payment or for buyers whose finances fluctuate and therefore need long-term predictability in their monthly mortgage.
An ARM might be a good idea if you: Plan to sell your home within a few years. Think interest rates will go down considerably in the long run. Expect your income to increase before your ARM adjusts.
For example, a 10/6 ARM typically features a lower interest rate for the first 10 years than a conventional 30-year fixed-rate mortgage. After that time, the ARM may go up or down, creating an opportunity for either potential savings or higher payments depending on the SOFR index + margin.
A 10/6 ARM Mortgage has an interest rate that is fixed for 10 years, and then the interest rate will be adjusted every six months after that for the duration of your loan.
Often, he says, people will find that the 10/6 ARM is “the best of both worlds,” giving them a lower interest rate than fixed rate loans such as a 30-year fixed but with more stability than a 5/6 ARM. Safis also recommends that people ask a few questions to help them decide if a 10/6 ARM is right for them.
Here are some reasons for getting an ARM in 2023: ARMs often offer interest rates and entire point lower than the current 30-year fixed rate mortgages. And sometimes an ARM can even be lower than an entire point! This means big monthly savings for a buyer.
Some ARMs, especially interest only and payment options, charge fees if you try to pay off the loan early. That means if you decided to sell your home or refinance it, you will pay a penalty on top of paying off the balance on your loan.
You can refinance an adjustable-rate mortgage (ARM) just like you could with any other type of mortgage. The option to refinance could make an ARM appealing if you're looking to buy a home and want to start with the lower rate—and monthly payment—that ARMs can offer, but you're worried about future rate increases.
Refinancing can be done for many reasons, but switching from an adjustable-rate mortgage (or ARM) to a fixed-rate mortgage is one of the most common. The general rule of thumb is that refinancing to a fixed-rate loan makes the most sense when interest rates are low.
As mentioned above, switching to a fixed interest rate will help keep your monthly payments stable. If you want to avoid an ARM's adjustment period, you could use a refinance to change the type of home loan you have. You want a different repayment period. Refinancing your ARM can allow you to change your term.
A 10/6 ARM means that you'll pay a fixed interest rate for 10 years, then the rate will adjust every six months.
Experts still predict mortgage rates will drop to the low-6% range by the end of 2024.
LIBOR is the name for an index of interest rates used in loans across the country and across the globe. LIBOR expires on June 30, 2023, as part of a transition that has been planned for several years. Adjustable-rate loans based on LIBOR must change to a replacement index.
ARMs tend to have lower starting rates than fixed-rate loans, but can get more costly after the introductory period ends. ARMs tend to work best for those who know they'll sell the home after a few years or can afford payment jumps.
Some ARMs may come with a prepayment penalty that kicks in if you refinance your loan or sell your home within three to five years. The penalty may be a fixed amount – such as six months' worth of interest – or a percentage of your principal balance.
ARM requirements are similar to those for fixed-rate mortgages. However, qualifying for an ARM home loan can be more difficult because you'll need enough income in case interest rates climb. As with any other mortgage, you'll need to prove your employment and income as part of the application.
Why did my mortgage payment increase? Mortgage payments can fluctuate because of changes in the economy like interest rates rising, but can also change for other reasons, such as if your property tax or homeowners insurance premiums increase.
When Should You Consider an ARM? Many homeowners choose an ARM to take advantage of the lower mortgage rates during the initial period. You may consider an adjustable-rate mortgage if: You plan on moving or selling your home within five years, or before the adjustment period of the loan.
An ARM may make good financial sense if you only plan to live in your house for that amount of time or plan to pay off your mortgage early, before interest rates can rise. An ARM may also make sense if you expect to make more income in the future.