What is a 10/1 ARM?
- Kristofor Erickson
- Mar 16, 2018
- 2 min read
As interest rates have started to rise, we have seen more lenders offer 10/1 ARM mortgages.
A 10 Year ARM is a loan with a fixed rate for the first 10 years that has a rate that changes once each year for the remaining life of the loan. Because the interest rate can change after the first 10 years, the monthly payment may also change.
A 10 year ARM, also known as a 10/1 ARM, is a hybrid mortgage. A hybrid mortgage combines features from an adjustable rate mortgage (ARM) and a fixed mortgage. It begins with a fixed rate for a specified number of years, but then changes to an ARM with the rate changing every year for the rest of the term of the loan.
Basically, an ARM is a mortgage loan that has an interest rate that adjusts, or changes, usually once a year. The benefit of an ARM is that it gives you a lower initial interest rate than a fixed rate mortgage. However, an ARM also caries the risk that the interest rate is likely to go up.
These types of mortgages aren't for everyone. A 10/1 ARM will offer a lower interest rate than a 30 year fixed mortgage, but that is only guaranteed during the first 10 years. There could be payment difficulty if rates adjust signifigantly higher. However, if you plan to move within 10 years (or refinance for some reason in the future), going with a 10-year ARM will provide you with a fixed rate for a significant period of time while you figure things out.
Talk to us at Access Law of Massachusetts to find out if a 10/1 ARM is right for you.
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