ARMs

ARMs are Adjustable Rate Mortgages. An adjustable rate mortgage is a mortgage with an interest rate that can change at set intervals. The interest rate on an adjustable rate loan will change either upward (to a higher interest rate) or downward (to a lower interest rate) depending on what a benchmark interest rate (often the Prime Rate) is doing at the time of the adjustment.

When the interest rate changes on an adjustable rate loan then the monthly payments you make on that loan also change. If the interest rate moves higher, then your monthly payments become greater, and if the interest rate drops then your monthly payment drops as well. There is always a bit of a gamble with an adjustable rate loan.

The primary advantage to an adjustable rate loan is that the interest rate is less than the rate for a fixed-rate loan. In other words, the interest rate for a 30-year fixed-rate loan is more than the interest rate for a 30-year adjustable rate loan.

The disadvantage is, if interest rates go up overall over the next few years, the rate on the adjustable rate loan will go up and may very well become greater than the fixed-rate loan. And as the rate of the adjustable-rate loan goes higher, the monthly payments you must make also become more.

Washington Mutual has several ARM options which can help reduce this disadvantage. It is possible, for example, to get a 30-year adjustable rate mortgage with a low initial start rate that is fixed for either a one-year, three-year or five-year term. In other words, for the first year or the first three years or the first five years (depending on the adjustable-rate loan you choose) your interest rate will be fixed just as it is with a normal fixed-rate loan. However, after the initial period of a fixed rate, then your loan can change rates – either moving upwards or downwards – at set intervals as stipulated in your loan document.

If you’re looking for an initial low interest rate and then you are willing to take a gamble on changing interest rates, Washington Mutual’s adjustable 15-year loan or its adjustable 30-year loan with a one, three, or five-year fixed rate period may be the perfect loan to allow you to get into the home of your dreams.