An adjustable-rate mortgage (ARM) is a 30-year home loan with an initial fixed-rate period, typically 3 to 10 years. The interest rate may change on an annual basis once the fixed portion of the loan expires. For example, with a 5/1 ARM loan, your interest rate would be fixed for 5 years, and could fluctuate up or down each subsequent year for the next 25 years.

ARM loans typically feature lower rates and monthly payments than comparable fixed-rate loans during the initial rate period, but rates could increase once the initial rate expires. While many home buyers prefer the security of a fixed-rate mortgage, an ARM can be a good choice, too - especially if you know you'll be moving within the next few years.

• 3/1 ARMs and 5/1 ARMs generally provide the lowest interest rates and monthly payments during the initial rate period - ideal for those who don't want a long-term mortgage.
• 10-Year ARMs are an increasingly popular option because they combine significant savings for the initial rate period with longer protection from market-based interest-rate fluctuations.

Benefits and Considerations

• The Best Short Term Rates - Conventional ARMs typically feature lower interest rates and APRs during the initial rate period.
• Low Monthly Payments - An ARM mortgage lets you keep your monthly payments low during the initial term of your home loan, which gives you the option to pay down your mortgage faster.
• Refinancing Options - Conventional ARMs are available for refinancing your existing mortgage, too.

Requirements and Qualifications

• Credit history - Conforming loans (loans that conform to Fannie Mae and Freddie Mac guidelines) are a good choice for borrowers with excellent credit, which generally means a FICO score of 740 or higher. There are also established guidelines for income and other personal financial information.
• Loan Amount - The loan amount for a conforming ARM is generally limited to $647,200 for a single-family home, though limits may be higher in regions where home prices are higher. Jumbo ARMs allow you to exceed the conforming loan limit to borrow for a higher-priced home.
• Down payment - Most conventional ARMs will require at least 5 percent (and optimally 20 percent or more) as a down payment. For loans with lower down-payment requirements, explore government-backed mortgages like VA loans and FHA loans.

Loan payment example: On a $150,000 loan for 360 months at 3.75% interest rate for the first 10 years on an Adjustable Rate Mortgage loan, monthly payments would be $694.67. No customer paid closing costs, APR is 3.410%. Adjustable-rate loans and rates are subject to change during the loan term. That change can increase or decrease your monthly payment and your Annual Percentage Rate (APR). This payment example does not include amounts for taxes and insurance premiums. The monthly payment obligation will be greater if taxes and insurance are included and an initial customer deposit may be required if an escrow account for these items is established.

Loan approval is subject to credit approval and program guidelines. Not all loan programs are available in all states for all loan amounts. Interest rate and program terms are subject to change without notice.

The rates shown above are the sample rates for the purchase of a single-family primary residence based on a 60-day lock period. These rates are not guaranteed and are subject to change. This is not a credit decision or a commitment to lend. Your guaranteed rate will depend on various factors including loan product, loan size, credit profile, property value, geographic location, occupancy and other factors.

To guarantee a rate, you must submit an application to Austin First Mortgage and receive written confirmation from a mortgage loan originator that your rate is locked. Application can be made online.

Conforming ARM Loans - APR calculation assumes a $150,000 loan with a 20% down payment and borrower-paid finance charges of 0.862% of the loan amount, plus origination fees if applicable. If the down payment is less than 20%, mortgage insurance may be required, which could increase the monthly payment and the APR. Conforming rates are for loan amounts not exceeding $647,200 in the states we serve. Adjustable-rate loans and rates are subject to change during the loan term. That change can increase or decrease your monthly payment.