A three-year adjustable-rate mortgage has a fixed-rate of interest for the first three years — then adjusts annually for the next 27 years.
The benefits of a 3/1 ARM include a lower monthly mortgage payment (at least for the first 36 months) and higher borrowing capacity.
Frequently Asked Questions About 3/1 ARMs
Can you pay off an ARM loan early?
Yes — just call the bank or mortgage servicer and ask for the payoff number.
Do ARM loans always go up?
It may seem that the adjustable-rate mortgages always increase. That's because the initial interest rate, often called a teaser rate, is actually lower than the fully indexed rate. But ARMs can and do go down.
Do you pay PMI on ARM loans?
If the down payment (or equity) is less than 20%, then you will have to pay private mortgage insurance (PMI).
How can I get out of an ARM loan?
The obvious answer is to refinance, however before you go down refinance lane, give the bank or servicer a call, and ask if it's possible to modify your loan.
How can I pay off my 15-year mortgage in 5 years?
Use our early payment mortgage calculator to estimate the monthly over payment.
How high can ARM loans go?
Typically, the lifetime interest rate cap is 5% plus the start rate.
What does a 2/2/5 ARM mean?
In this example, the 5/1 ARM has 2/2/5 caps:
- 2: At the first adjustment, the interest rate cannot go up or down more than 2 percent
- 1: The second 2 represents every adjustment after the first one
- 5: The interest rate will never change more than 5%, up or down
Why should you use a 3/1 ARM?
If you will be in your house for less than three years, you will save money by choosing the 3/1 ARM because the interest rate is less than a 30-year fixed-rate mortgage. The 3/1 ARM is a popular choice for corporate and federal Gypsies.
Does FHA offer a 3/1 ARM?
Yes, although, the 3/1 ARM is not originated directly from the FHA, but through approved lenders.
The interest rate can increase of two percentage points annually, and six points over the life of the mortgage.