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I was approved for an ARM loan. Just tying to understand this loan type better. Is this a bad loan?

by penny.jenny204 from Jonestown, Pennsylvania. May 8th 2020 Reply


Leo Harvey (LHARVEY)
#6 ranked lender in Pennsylvania - 146 contributions

The Lender that approved you should have discussed the details of the loan with you and made sure you understood how it works and why it was recommended. An ARM is an adjustable rate loan which means the note rate and you payment can change over the life of the loan based on changes to a money index like the treasury bond or LIBOR index. If these terms mean nothing to you then you were not given all the information you need to make a proper decision or you misunderstood the information provided.An ARM loan is not good or bad, it is different from a fixed rate loan and whether it is better for you depends on your individual qualifications. If you would like to discuss it outside of a public forum, email me at lharvey@accutechloans.com.

May 9th 2020
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David R Youngs - Assistant Vice President (DavidRYoungs)
#2 ranked lender in Minnesota - 83 contributions

ARM stands for "Adjustable Rate Mortgage." Unlike a "Fixed Rate" mortgage where the interest rate NEVER changes - with an ARM, the interest rate can change multiple times over the loan term. When that first change can happen, the frequency it can continue to change, the amount that it can change by and the MAX it can ever increase to - can all be different for each type of loan. As an example: "5/1 ARM" means that the rate will be fixed for 5 years and then can adjust higher (or lower in some cases) at the 5 year anniversary. The "1" means that the interest rate can change again 1 time per year thereafter, on the loan anniversary. The primary benefit for why someone may consider an ARM, is that the initial interest rate may be a little lower than a fixed rate. Usually the times it makes the most sense to consider an ARM, is if you don't intend to stay in the home or in the loan for more than the initial fixed rate period (such as less than 5 years in the example above). If you plan to be in the home for a longer period, then a fixed rate likely makes more sense. Also it's good to consider that for most lenders, ARM's are not actually much lower than fixed rates. In fact for some, the rates are actually BETTER on a "fixed" rate option. I would ask your current lender to share the rate and cost differences between the two options, so you can view them side-by-side. I would also consider carefully how long you intend to keep the loan, so that you can decide which option is best for you. If you would like more information on how this works and what to look for, please feel free to call or text me @ 651-497-6770 or email me at dyoungs@progressivels.com Thank you for your question!

May 9th 2020
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Joe Metzler (JoeMetzler)
#1 ranked lender in Minnesota - 4,097 contributions

Contrary to wide spread belief, there is nothing wrong with an adjustable loan. As with so many other things in life, it is a choice that can be so right for one person, and so wrong for another. You have to weight the risks versus benefits. For example, assume a 7/1 ARM, so fixed for the first 7 years, then becomes adjustable. Assume the rate is 1/2% better than a fixed, and you will only be in the home less than 7-years. Why pay the higher fixed rate when there is no risk for the adjustable? I lend in MN WI IA SD and ND. I can be reached at iMortgageJoe.com. NMLS 274132

May 12th 2020
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