FHA Adjustable Rate Mortgage – 3/1 FHA ARM
With a FHA Adjustable Rate Mortgage (ARM) you may be able to qualify for a higher loan amount as it offers you an initial lower interest rate than a fixed rate mortgage. So, if you’re planning to only own your home for a few years or expect an increase in future income a FHA ARM may be a good loan option for you to consider when purchasing or refinancing your home.
3/1 FHA ARM
With a 3/1 FHA ARM, your rate is fixed for three years. After the introductory period (year four) your rate will then adjust either up or down annually for the remainder of the term of your loan. The payment adjustment date will be the first of the month following the interest rate adjustment and every 12 months thereafter.
There are four components to a 3/1 FHA ARM that you will need to be aware of before you decide if this loan option suits your particular financial needs. The four components are an index, a margin, an interest rate cap structure and an initial interest rate period. When your initial three year interest rate period has expired, your new interest rate will then be calculated by adding a margin (which your lender should disclose to you at the time of your loan application) to the index (usually the LIBOR or US Treasury interest rate) with an initial cap of 1%. As the index figure adjusts up or down accordingly so will your rate however you are protected no matter how high interest rates increase by an annual cap limit of 1% and a lifetime cap limit of 5%.
Choosing the right loan option for you may be the most important financial decision you will ever make so understanding how a 3/1 FHA ARM functions can help you determine whether or not this is a sensible loan option for you.
For more information or to learn how FHA financing can benefit you, contact one of our FHA Mortgage Consultants today!
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