< Back to all branch locations

When deciding between a 5/1 adjustable rate mortgage (ARM) and a 10/1 ARM, the distinction between the two is the initial fixed interest rate period. Both of these loans combine a variable-rate feature and a fixed-rate feature into one home loan. For example, for the 5/1 ARM, the “5” indicates that the interest rate for the loan remains fixed for the first years, and the “1” indicates that after the five years are over, the rate will adjust once every year until the loan is repaid.


What is a 5/1 ARM loan? A 5/1 ARM mortgage, also known as a hybrid adjustable rate mortgage is a loan with a fixed rate for the first five years that has a rate that changes once a year for the remaining years that are left on the loan. This loan option can be used if you’re buying a home, refinancing or wanting a cash-out refinance and is also an option for FHA, VA, Conventional, and Jumbo loans.

What is a 10/1 ARM loan? Similar to the 5/1 ARM, a 10/1 ARM mortgage is a loan that offers an initial fixed rate period of 10 years, then the rate will adjust once a year for the remaining years that are left on the loan. The 10-year ARM is an option for Conventional and Jumbo Loans and can be used if you’re buying a home, refinancing or interested in a cash-out refinance.

Benefits of a 5/1 ARM loan: A 5/1 ARM home loan is designed to offer a lower interest rate initially. This interest rate will be fixed for the first five years of the loan. During this time, you will know the exact amount you will be paying on your home loan every month. However, once this period of time is over, your payments could change. This is a great mortgage for someone who only plans to live in a house for a short period of time and if you intend to sell it before the introductory interest rate changes. The 5/1 ARM also has the lower rate compared to others.

Benefits of a 10/1 ARM loan: A 10/1 ARM home loan has an interest rate that will remain the same for 10 years. If you’re planning on staying in your home for 10 years, a 10/1 ARM may be a better choice for you. As rates rise, you may get a lower rate with this loan, potentially saving thousands of dollars over the life of the loan.

The Main Advantages: The main advantage of an ARM is that for the original payment period of the loan, you may pay less in interest and have more affordable monthly payments. As a result, you might be able to receive a more substantial loan and buy a much larger house. If you are not planning to stay in your home for a long period of time, you can obtain the benefits of a large home with lower payments without having to pay a higher interest rate—as you will most likely have moved before the fixed payment period is over.

Also, you could end up paying a lower interest rate once the fixed-payment period is over, but it all depends on the state of the market, and in certain instances, an ARM could save homeowners a lot of money.

Many homebuyers will choose an ARM loan because of the upfront savings that the loan offers. With initial interest rate and payments that are lower than a fixed rate loan, ARM loans offer what many homebuyers need, which includes the following:

  • Upfront savings:With the lower rate and payment in the initial period, you’re free to reach your financial goals with the money you would be using on a fixed rate loan
  • Initial fixed period: Enjoy the fixed, lower rate for the initial period
  • Cap on the amount you could pay:You won’t be taken by surprise because there are limits on the interest rate adjustments after the initial fixed period

Adjustable Rate Mortgages Benefit Borrowers Who:

  • Want a low initial interest rate and payment
  • Move often
  • Expect to earn more in a few years
  • Purchase, renovate, and resell properties
  • Plan to refinance before the loan adjusts
  • Have growing families and need a larger home in the future

Is an ARM Right for You? When used carefully, an ARM loan may be a great way to save money. Make sure you look at all your choices carefully when deciding which ARM loan product will best meet your needs. Contact a New American Funding Loan Officer to find out if an ARM mortgage is right for you.


Read more at https://www.newamericanfunding.com/blog/51-arm-vs-101-arm/#aIRKuOkFXPQ90Lb3.99


MBS RECAP: Trade Headlines Stealing Thunder From Heavy Hitters

Posted To: MBS Commentary

Last week saw an apparently important jobs report ATTEMPT to have a lasting impact on financial markets only for the move to be completely erased by this morning. Labor market data was already a bit of an outcast owing to its consistently strong performance in recent months/years (i.e. labor market strength is the rule, not the exception. Therefore, the strong report is less of a surprise and thus less of a market mover). But if we could only pick one reason for markets to ignore jobs data (or MOST data for that matter), it's the uncertain economic implications of an eventual trade deal. That also helps explain all of today's intraday volatility as bond yields were bumped up early in the domestic session by one batch of headlines and then again about an hour later by another batch of...(read more)

Forward this article via email:  Send a copy of this story to someone you know that may want to read it.

Mortgage Rates Slightly Higher Ahead of Fed Announcement

Posted To: Mortgage Rate Watch

Mortgage rates moved up modestly today as bond markets weakened in response to trade headlines. This week's key consideration on the trade front is whether or not the planned December 15th tariff increase is delayed, canceled, or confirmed. In general, a delay or cancelation would be bad for rates, but markets are already expecting a delay to some extent. The bigger deal would be waking up Monday morning of next week to find the tariff hike had been implemented. In that case, rates would likely benefit (i.e. move lower!). Between now and then, we are most likely to see moderate volatility in a fairly narrow range. Several optimistic trade headlines put upward pressure on rates today, but not enough to push them outside their recent range. Tomorrow brings a policy announcement from the Fed ...(read more)

Forward this article via email:  Send a copy of this story to someone you know that may want to read it.