FHA Adjustable Rate Mortgage – 5/1 FHA ARM

FHA Purchase | FHA Refinance | FHA 203K Rehab Loans | FHA 5/1 ARM
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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 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.

5/1 FHA ARM

With a 5/1 FHA ARM, your rate is fixed for five years.  After the introductory period (year six) your interest 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 5/1 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 five year rate period has expired, your new 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 2%.  As the index figure adjusts up or down accordingly so will your interest rate however you are protected no matter how high interest rates increase by an annual cap limit of 2% and a lifetime cap limit of 6%.

Choosing the right loan option for you may be the most important financial decision you will ever make so understanding how a 5/1 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, use the form to the right or call 888-790-0292!

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