KNOWLEDGE CENTER

A five year ARM is a loan that has a fixed period for five years, and then adjusts periodically for the rest of the life of the loan. During the fixed period, your interest rate wont change.

This is a great type of loan for many homeowners for the simple fact that the average American sells or refinances within every 5 years. With that said it makes a lot of sense to look into obtaining a loan with a low fixed rate for 5 years versus taking on a 30 year fixed rate loan with a higher interest rate. Always explore your options as a borrower and if your mortgage broker does not present these different options to you ask if he/she can. Sometimes however there is very little difference in interest rates on some ARM's compared to a fixed rate loan and it may make more sense to just take the fixed 30 year mortgage.

Many lenders offer great rates on 5 year arms, and many times offer better rates than on lower term 2 and 3 year arms.

Most 5-year Adjustable Rate Mortgages have a 30-year amortization, that is, payments are calculated to pay off the loan in thirty years.

There are two kinds of 5 year adjustable rate mortgages: the 5/1 and the 5/6. The 5/1 is a 5 year adjustable rate mortgage that adjusts annually or every 12 months after the 5 year introductory period is over. The 5/6 is a 5 year adjustable rate mortgage that adjusts every 6 months after the 5 year introductory period is over. Both of these 5 year adjustable rates mortgages can be fully amortized where you pay principal and interest or interest only where you only pay principal payments at your discretion.

Most consumers go with a traditional 30-year fixed loan, but their financial situation changes over the course of time and they end up refinancing after 3 or 4 years. The rates on a 30-year loan are higher than a 5 year, so in some cases it makes better since to go with a 5 year.

Even thought the first five years of the loan is fixed, the five year mortgage is considered an adjustable rate mortgage. Adjustable rates transfer part of the interest rate risk from the lender to the borrower. They can be used where unpredictable interest rates make fixed rate loans difficult to obtain.

The 5 year adjustable rate mortgage when combined with an interest only option is a great way for borrowers to reduce their monthly mortgage payments plus stability of a fixed rate loan.

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