< 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 Day Ahead: The Obvious Bounce Could Be Too Obvious

Posted To: MBS Commentary

As the week comes to a close, we find bonds continuing to trickle toward the lower end of the range that has prevailed for nearly 3 months. In terms of 10yr yields, the upper boundary is clearly established at 1.95%. The lower boundary is slightly more open to interpretation, but in any event is somewhere between 1.69 and 1.71. With yields moving down to 1.717% in the first hour this morning, it's time to ask ourselves if we're about to see another range bounce. Frankly, the only reason we wouldn't see such a bounce at this point is that it's too obvious. Econ data at home and abroad has been "OK" or better on average (especially in areas of concern like German manufacturing, which came out better than expected overnight). We're not at war with Iran. The coronavirus...(read more)

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

Changes to FICO are on the Way

Posted To: MND NewsWire

Paying bills on time is about to become more important for American consumers, and this as their debt levels are reaching new highs. Fair Isaac Corporation, the company which creates the FICO credit score models, will introduce two new ones this summer, the FICO Score 10, and the FICO Score 10- T. The company says its new models "incorporate trended credit bureau data to further enhance predictive power" and that lenders could reduce defaults by as much as ten percent among newly originated bankcards and nine percent among newly originated auto loans, compared to using FICO's previous models. The reduction , the company says, could be 17 percent for newly originated mortgage loans compared to the version of the FICO Score used in that industry. The trended credit bureau data to which Fair Isaac...(read more)

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