What is 10 Year Adjustable Rate Mortgage?
An adjustable rate mortgage more commonly known as ARM is a type of home loan program where the mortgage interest rates are set for a fixed term and then adjusted periodically. ARM is available for 1 year, 3 years, 5 years, 7 years or 10 years. The new mortgage interest rates will be high or low depends on the movement of the financial index your loan is tied to.
Common indices associated with ARMs are the Cost of Funds Index (COFI), the London Interbank Offered Rate (LIBOR), and Constant-Maturity Treasury (CMT) securities. Some lenders prefer to make use of their own cost of funds as an index, instead of utilizing other indices.
A 10 year adjustable rate mortgage has fixed mortgage interest rate for the initial 10 years. After that, mortgage interest rates are adjusted every year for the remaining 20 years. Whether your monthly payment will increase or decrease after adjustment totally depends on the change in the index.
What are the benefits of getting a 10 Year Adjustable?
You get a lower initial rate with a 10 year adjustable rate mortgage which is not possible if you opt for a fixed rate mortgage. There’s a probability that the rates after adjustment will also be lower because your lender does not determine the rates. Mortgage interest rates solely depend on the index your ARM is tied to. 10 year adjustable rate mortgage is a good choice if you wish to move to a new bigger house after some years. It also allows you to apply for a bigger loan which aids you in buying a larger house.
When the interest rates are plummeting, you enjoy low mortgage interest rates with a 10 year adjustable rate mortgage. Low monthly payments mean you can save a lot of money. You have no such advantage if you enter a fixed rate mortgage.
Who qualifies for a 10 Year Adjustable?
To qualify for an ARM you need to make at least 5% as down payment. A good credit score and a stable job is mandatory to get a 10 year adjustable rate mortgage. The market is volatile; no one knows when the interest rates will increase or decrease. In order to make the right decision regarding home loan, you should take personal factors in consideration. Before taking out a 10 year adjustable rate home loan program, ask yourself these questions:
- How much monthly payment you can afford?
- Would you be able to afford an ARM if the interest rates go up?
- What are your future plans?
- How long you wish to stay in the property?
- These answers will aid you in making an informed decision; whether to sign a 10 year adjustable rate home loan program or not.