Adjustable Rate Mortgages, also known as ARMs, are popular in our Madison, Wisconsin lending office, and can be a great option for borrowers who may not be planning to stay in their home for more than a few years, often less than 3, 5 or 7 years. An ARM is simply a loan term with interest rates that can change periodically after the initial fixed rate period, meaning, most ARMs have an initial fixed rate period where the interest rate doesn’t change, followed by a longer period during which the rate changes at preset intervals, moving up and down as interest rates fluctuate.

The leading adjustable rate mortgages for Madison, Wisconsin borrowers is the 5/1 ARM. The 5/1 ARM has an introductory rate that lasts for 5 years, and after that time period, the interest rate can change every year, meaning monthly payments are susceptible to increases or decreases based on market fluctuations which can also affect the monthly payments. There are also 3/1 ARMs, 7/1 ARMs, and 10/1 ARMs.

If the future fluctuation of an ARM isn’t appealing, fixed rate home loans offer an interest rate that remains the same for the entire term of the loan. Borrowers can choose to extend the life of their loan for smaller monthly payments, or pay off their fixed rate mortgage more aggressively if they can afford a higher monthly payment.

Our Madison, Wisconsin team finds Adjustable Rate Mortgages very suitable for borrowers who are planning to sell within a few years, as they can immediately take advantage of the lowest interest rate available at the time of borrowing.

ARM Loan Highlights:

• Lowest interest rates
• Lower initial monthly payment
• Possibility to qualify for a higher loan amount
• Rates and payments may increase or decrease based on the index rate