5 Year Adjustable Rate Mortgage (ARM)

Features & benefits

• The rate is fixed for five years and then switches to a one-year adjustable rate in the sixth year. The initial rate is normally lower than a fixed rate. Annual rate increases are limited to 2%. The lifetime increase is limited to 5%.
• There is a lower initial rate than most 30- or 15-year fixed rate loans while maintaining the security of a fixed rate for five years. Monthly principal and interest payments will remain the same in the loan’s early years - a time when most people can least afford an increase.

Disadvantage: 
If the worst-case scenario occurs (a maximum rate increase of 2% per year or a lifetime increase of 5%), it could mean significant changes to your monthly payment.

Tip: 
When considering an adjustable-rate mortgage, calculate your monthly payment in the worst-case scenario. If this fits your budget and is an acceptable risk level, the ARM may save you money in the long run.