If you are planning on being in your home for three to five years, a 3/1 ARM might be the right program for you. With a 3 year ARM, your rate is locked in at an introductory rate for the first three years of the mortgage (36 months) and then will begin adjusting upward or downward after the introductory period expires. The great thing about short term ARM programs is that they typically carry a lower introductory rate than what’s often available with their fixed rate counterparts. This factor may lead to big savings for the consumer during the initial 3 year window. However, these benefits must be weighed with the added risk that these loans bring to the table.
3 year adjustable rate mortgage programs are not recommended for clients who do not actively monitor their finances. It is very important that homeowners mark their calendar near the end of the introductory period. At that time, if one’s payment is going to adjust upward significantly and they are planning on staying in the home, they may want to refinance to another ARM or lock in on a fixed rate home loan.
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3 Year ARM Program Highlights
- Low introductory rate for first three years.
- Loan sizes will vary by institution.
- Many have 2/2/6 caps which means the initial rate can not go up or down more than 2% at the first adjustment period, 2% at any adjustment thereafter, and 6% total at any point during the 30 year term. Ask the various companies for their caps and margins.
- Indexes will vary but may include LIBOR or Treasury. Be sure to ask to details.
Using ForTheBestRate.com to Check 3 Year Adjustable Rate Mortgage Rates and Closing Costs (2 options)
1. Call the lenders, banks, and brokers listed in the survey for more information.
2. Use the survey to connect with the companies’ web sites.
Looking for Even Lower Payments for 3 Years? Maybe a 3 Year Interest Only Loan May Make Sense
3 Year ARM IO (interest only) loan highlights:
- Low introductory rate in place for the first three years of the loan.
- Reduced monthly payments due to interest only payment option.
- Flexibility to add principle payment when extra cash-flow is available.
- Possibly a good solution for people who only plan to be in a home for three to five years.
- May be a good fit for those who need to have the lower payment in order to afford a home and who expect their income to increase in the next few years.
- Allows customers to minimize monthly housing expenses and provides cash-flow flexibility.
It is important to note that interest only loans add an additional lay of risk to an already risky short term financing program. It is important to fully understand how adjustable rate mortgages work before choosing an ARM program. Contact a licensed mortgage professional for more information on 3/1 ARM financing and other adjustable rate mortgage products.
What types of occupancy and properties are usually allowed for 3/1 ARM financing?
Most lenders offer 3 year adjustable rate mortgage financing for primary residences, second homes, and investment properties. However, pricing adjustments may make these products unattractive for non-owner occupied homes. Also, some lenders and brokers may not offer interest only options for rental properties and vacation homes.
We are aware of 3 year ARM financing for single family homes, 2-4 unit multi-family homes, condominiums, and town homes. We do not know of any lenders offering these programs for manufactured (mobile homes) at this time.