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How ARM rates work: 3/1, 5/1, 7/1 and 10/1 mortgages

30-Year Fixed-Rate Mortgages Since 1971 – Freddie Mac Last year at this time, the 30-year FRM averaged 5.69 percent. The 30-year FRM has not been lower since Freddie Mac started the Primary Mortgage Market Survey in 1971. The report also showed why adjustable-rate loans have all but gone the way of the dinosaurs. Loans fixed for five years that then begin to fluctuate based on government bond.

After the initial introductory period the loan shifts from acting like a fixed-rate mortgage to behaving like an adjustable-rate mortgage, where rates are allowed to float or reset each year. If a loan is named a 5/1 ARM then what that means is the loan is fixed for the first 5 years & then the rate resets each year thereafter.

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3/1 Adjustable Rate Mortgage (3/1 ARM or 3 year ARM) Adjustable Rate Mortgage. 3/1 ARM (3 year ARM)- the rate is fixed for a period of 3 years after which in the 4th year the loan becomes an adjustable rate mortgage (ARM).The adjustable rate is tied to the 1-year treasury index and is added to a pre-determined margin (usually between 2.25-3.0%) to arrive at your new monthly rate.

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Fixed vs adjustable rate mortgages Understanding Adjustable Rate Mortgages (ARMs. – An ARM, short for adjustable rate mortgage, is mortgage on which the interest rate is not fixed for the entire life of the loan. The rate is fixed for a specified period at the beginning, called the "initial rate period", but after that it may change based on movements in an interest rate index.

3 Year Adjustable Rate Mortgage – 30-year loan term – 3 years fixed, with rate changes every year after the fixed period. 5 Year Adjustable Rate Mortgage – 30-year loan term – 5 years fixed, with rate changes every year after the fixed period.

ARM Element Element Name Element Example; 5/1 (the 5 in the 5/1) Initial rate and period: The initial rate on the loan is 3.250% for the first five years. 5/1 (the 1 in the 5/1) Adjustment period: After 5 years, the interest rate can adjust once a year. Market index (LIBOR, in this example) Rate adjustment

An adjustable-rate mortgage (ARM) is a loan in which the interest rate may change periodically, usually based upon a pre-determined index. The ARM loan may include an initial fixed-rate period that is typically 3 to 10 years.

How arm rates work: 3/1, 5/1, 7/1 and 10/1 mortgages.. Adjustable-rate mortgages, or ARMs, have been the ugly stepchildren of the mortgage world for years. But consumers are changing their tune. 5/1 Adjustable Rate Mortgage. This 30-year loan offers a fixed interest rate for the first 5 years and then turns into a 1 Year Adjustable Rate.