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For instance, 5/1 ARM means that the interest rate is fixed for 5 years. After five years, the rate will be adjusted annually until the loan is paid off. You may also find ads for 2/28 or 3/27ARMs in the market. The rule of thumb is:
- The first number will tell you how long the fix rate interest will last.
- The second numbers will show how often the interest rate will adjust after the initial period.
Interest Only ARMs:
Interest only ARMs is also known as “I-O ARM”. This type of loan allows you to pay only the interest for a certain number of years. For instance, you can make a smaller between 3 and 10 years. After the grace period, your monthly payment will increase, because you have to start paying back the principal.
Payment Option ARMs:
Basically, a Payment option ARMS allow you to choose several payment options each month. Some of the typically options are:
- Interest Only Payment: You only make a payment, not the principle.
- Principal And Interest: You pay for principal and interest to deduct the mortgage. These payments are based on a set loan term like 15 years and 30 years.
- Minimum Payment: If you choose this option, you can pay less than the amount of interest that month. The catch is the amount of interest that you do not pay will be added to the principal of the loan. Your future monthly payments will increase due to the increasing principal.
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A Basic Variable Loan Program is quite similar to a standard variable loan except that a few additional features and the associated flexibility and benefits of these features are missing in a basic variable loan.
