Adjustable Rate Mortgages

With the vast number of loan options to select from, you need to find a lender that will work to help you choose the best mortgage for you and your lifestyle. Look no further: J.G. Wentworth is a direct lender offering a variety of mortgage options, including adjustable-rate mortgages. With our streamlined processes, we are able to assist you in getting the mortgage that will help you purchase the home of your dreams. 

What is an adjustable-rate mortgage?

An adjustable-rate mortgage, or ARM, is a type of mortgage which initially has a fixed interest rate for a set period of time, but then fluctuates over the lifetime of the loan based on the conditions of the market. This type of mortgage can be attractive because, during the initial period, interest rates can start lower than those associated with fixed-rate mortgages. Once the fixed period is over, interest rates are subject to adjustments based on a predetermined frequency--this can be either on a monthly, quarterly, or annual basis. 

Advantages of ARMs

The variation of interest rates for adjustable-rate mortgages can prove to be advantageous for some homeowners. As previously stated, during the initial period, the interest rate is typically fixed at a low rate. The initial period tends to last three, five, or seven years. For example, the mortgage may mention a 5-year fixed interest rate period followed by annual interest rate adjustments. That means that once those five years are complete, the interest rate is no longer fixed and will instead be based on market conditions.

Initial, Fixed Period

During the initial period, homeowners have the opportunity to save up to hundreds of dollars a month due to lower payments. By way of savings, you could potentially pay off your mortgage faster by making additional payments on your principal. There are no pre-payment penalties, and the additional payments to your principal can ultimately lower the subsequent monthly payments.

Adjustable Payments

After the initial period, if interest rates decrease, your mortgage rate may adjust, and your payments could lower as well. In instances like this, borrowers get to take advantage of falling rates without having to go through the refinance process. Also, if the market dictates interest rates to rise, your payments can follow suit. That is why it is crucial to consider whether or not you will be able to continue making mortgage payments in the event that interest rates rise. For borrowers that anticipate an increase in monthly income, an adjustable-rate mortgage can make sense.

Who Benefits

Adjustable-rate mortgages are also an attractive mortgage option for borrowers who don’t plan on staying in one place very long. If you plan on residing in your house for 3 or 5 years, an adjustable-rate mortgage will allow you to take advantage of the low-interest rates during the initial, fixed period and you can take that time to save money for your next home purchase. If you move before the adjustable-rate period begins, then you won’t be exposed to any major rate adjustments. 

If you do not plan on moving anytime soon, but want to protect yourself from any considerable interest rate hikes, continue reading to learn about rate caps and how they work as a safeguard for you.

Managing ARMs With Caps

Some caps are built into an adjustable-rate mortgage to manage a borrower's level of risk. The caps limit how much an ARM can adjust. They still allow interest rates to move up and down, but the caps ensure that your rate will never swing higher or lower than the caps allow. Here are three possible caps you may encounter:

Initial cap: The maximum amount the interest rate can adjust immediately following the initial, fixed-period. 

Periodic cap: The limit that interest rates can increase from one adjustment period to the next. 

Lifetime cap: The limit that the rate increase over the life of a loan. If you have a 30-year adjustable-rate mortgage, your interest rate will not be able to exceed or drop below the amount of the lifetime cap. 

An example of how you may see caps structured would be 5/2/5. This means that the rate can change 5% after the initial, fixed-period, 2% with each subsequent interest rate change, and 5% as a total throughout the entirety of the loan. 

Adjustable Rate Mortgages and You

When you choose to work with J.G. Wentworth to find a mortgage for buying your home that works best for you, you are choosing to work with a team of knowledgeable professionals that are dedicated to helping you become a homeowner. Our loan specialists take time to learn about you and your financial goals for the future, and provide the information you need so you can make an informed decision. We offer an unbeatable level of customer service to ensure your satisfaction.

Get a rate quote online or contact a loan specialist today to see how adjustable rate mortgages apply to both conventional and VA loans.

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How do I get started?

J.G. Wentworth offers a wide variety of loan programs with low rates and no points and no hidden fees.  To get started, you can call us or let us contact you by completing a short form.  You can also get a rate quote in seconds with no personal information required. We look forward to working with you.