Make your dream of owning a home a reality with a San Francisco Federal Credit Union adjustable rate mortgage.
Adjustable rate mortgages are a hybrid of variable and fixed interest rates. Generally, a fixed initial interest rate is offered the first few years of the loan, followed by variable rate interest after that. Therefore, investors can expect to have varying payment amounts for the life of the loan as opposed to one consistent payment, as with a fixed rate loan.
The advantage of an adjustable rate mortgage is that they carry lower interest rates during the fixed period of the loan, which in turn gives you the option of a lower payment during the initial fixed period of the loan.
Difference between Adjustable Rate Mortgage (ARM) Loans and Fixed Rate Mortgage Loans
ARMs differ from fixed rate mortgages in many ways. Most importantly, with an ARM the interest rate adjusts periodically, usually in relation to an index, and payments may go up or down accordingly. ARM rates may have a fixed rate period of three years, five years, seven years or 10 years . After the initial fixed rate period, the interest rate and payment may change accordingly.
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Mortgage Loan FAQs
Q: Which factors can help me get the lowest interest rate on my mortgage?
A: Our loan officers consider an applicant’s debt-to-income ratio, credit history, down payment, home price, and type of loan. Generally, applicants who have higher credit scores, lower overall debt, and a secure income can access lower rates.
Q: How much of a home loan can I afford?
A: When you’re buying a home, mortgage lenders look at your income, assets, and down payment. They also consider your liabilities and obligations, including auto loans, credit card debt, child support, potential property taxes and insurance, and your overall credit rating. These variables come together to determine the total loan amount.
Using this calculator will give you an idea of how much of a mortgage you may be able to obtain. However, we welcome you to speak with one of our mortgage professionals who can help you consider all the variables to determine the right loan and loan amount for you.
Q: How is the interest rate on a mortgage determined?
A: Mortgage loan index rates vary from day to day based on the Prime Rate, which the U.S. Federal Reserve influences. From there, we determine what rate you qualify for by checking such things as your credit score, payment history, and employment history. The better your finances, the lower the rate you are offered.
Q: What is the difference between a fixed-rate mortgage and an adjustable-rate mortgage?
A: A fixed-rate mortgage has an interest rate and monthly payment that never changes. An adjustable-rate mortgage (ARM) has an interest rate that changes based on the Prime Rate, which we mentioned above. The variable interest rate associated with an ARM means the monthly payments for that type of loan change with the changing interest rate.
For information about mortgage loan variables, please contact us to speak to one of our knowledgeable mortgage team members at 800-852-7598, extension 2977.
Q: How are payments determined on a variable rate mortgage?
The interest rate, loan term, and balance when your loan is closed are how we determine your initial monthly payment of principal and interest.
Let’s use the 5/1 ARM as an example. Payments are set up so that you can pay off your loan in 360 months. As interest rates go up or down, your payments could change after 60 months. Then, following this period, your payments amount could change every 12 months.
Other factors can affect your monthly payment in the meantime, depending on a change in your taxes, assessments, and more.
There are limitations on the changes that can be made to interest rates. On the first change date, they won’t increase or decrease by more than 2.000 percentage points from the initial interest rate (excluding any buydown).
After the initial adjustment period, your interest rate will not increase or decrease by more than 2.000 percentage points annually, and over the life of the loan, they cannot increase more than 6.000 percentage points above the initial interest rate (also excluding any buydown).
Q: How will I be notified of any adjustments?
Notifications of adjustments come at least annually if there are any changes in interest rates. You’ll be notified in writing if an interest rate change also means a change to your monthly payments. This written notification will come at least 25 calendar days, but not more than 120 calendar days before the payment is due at the new level.
You’ll see the adjusted payment amount, interest rate, Index value, and the outstanding loan balance at the time.
Mortgage Loan Resources
At San Francisco Federal Credit Union, we’re here to help you achieve your financial goals. Please see our helpful tools and resources or speak to one of our team members who are ready to support you on your journey to becoming a home buyer.
Get the Mortgage to Fit Your Needs With San Francisco Federal Credit Union
With the right mortgage, you’ll be one step closer to buying your dream property. Let San Francisco Federal Credit Union help you find the perfect mortgage today.