DSCR vs. No DSCR Loan: What's the Difference?
If you’ve tried acquiring financing for your investment purchase but can’t get a conventional loan or other solution, like a conventional loan, you...
Before you lock yourself into a single interest rate for 30 years, you may want to consider an adjustable rate mortgage. One of the most popular types of adjustable rate mortgages is a 5/1. Here’s what you need to know about how this loan works and why it may be beneficial for you:
An adjustable rate mortgage, or an ARM, is a type of mortgage that has a changing interest rate over the life of the loan. ARMs are also known as variable rate mortgages or even floating mortgages. An ARM consists of an initial rate that remains fixed for a period of time before changing at a set interval.
The adjustable interest rate is generally set by market conditions -- with some limitations. At the end of the day, while an adjustable rate mortgage may sound like a risky venture with unlimited variations, there are terms in place to make it a more stable option for borrowers.
Dealing with the world of mortgages as a newbie can definitely be confusing and overwhelming. Trying to figure out all of the terms on your own can seem impossible -- especially when dealing with complex concepts like adjustable rate mortgages. For this reason, it’s worthwhile to cover some of these key terms as it relates to a 5/1 ARM with 2/2/5 caps:
Simply knowing these terms should give you a better idea of what a 5/1 ARM is. However, it’s still necessary to dive deeper into this concept to gain a complete understanding.
As you now know, a 5/1 ARM is a mortgage that has an initial five-year fixed interest rate period before switching to a floating interest rate that is adjusted on a yearly basis. The first number “five” refers to the fixed rate period and the second number “one” refers to the adjustment interval.
This type of mortgage loan is quite popular as it provides borrowers with a low initial interest rate before switching to a variable interest rate. In most cases, this can translate into paying higher interest rates over the lifetime of the loan.
Like any mortgage, there are both pros and cons to choosing a 5/1 ARM that you need to consider to make the best decision for your unique financial situation.
Some of the pros of a 5/1 ARM include:
Some of the cons of a 5/1 ARM include:
While a 5/1 ARM is one of the most popular choices, there are other types of adjustable rate mortgage loans to consider:
How to Choose the Right Mortgage Loan and Lender for You
There are several different factors to consider when choosing the right mortgage loan for you. The first thing you should consider is your timeframe. If you’re looking for a forever home, an ARM may not be the best option. On the other hand, if you’re looking to stay in a home on a short-term basis, then an ARM may work well for your situation.
Other factors you should consider are your current financial situation in addition to your planned financial future. If you’re short on cash now and want to take advantage of low interest rates to save money and use it elsewhere, then an ARM may be ideal. However, this is only true if you expect your income to increase enough to cover potential changes in interest rates down the road.
In terms of finding the right lender, not all lenders offer ARMs. As a result, you’ll need to find a lender that offers the products and terms that you’re interested in. But there’s so much more to it than that!
Whether you’re an experienced investor or a first-time homebuyer, you need to look for lenders that offer top-notch customer service. You also need to look for lenders that are totally transparent about their terms. Finally, you need to look for a lender that’s experienced and reputable within the industry.
If you’re looking for a lender that meets all these qualifications and then some, look no further than Vaster Capital. Vaster Capital offers a wide range of mortgage solutions, so reach out to one of our experts today for personalized advice.
Sources:
If you’ve tried acquiring financing for your investment purchase but can’t get a conventional loan or other solution, like a conventional loan, you...
When you want to buy one property, a conventional loan usually does the trick. But what if you want to buy multiple properties simultaneously? Do you...
Overall, Florida’s housing market has undergone significant shifts in the last few months, with notable decreases in sales activity as a result of...