Adjustable Rate Mortgages
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Also called ARMs. ARMs can be good for you, because they allow you to benefit when rates go down, however, ARMs can also be bad for you, because they force you to pay more when rates go up. But, generally speaking, an ARM is worth considering. ARMs are a good choice for most people when they plan on selling their home or refinancing within the next five years or if market mortgage rates are high and expected to fall. Over the last twenty years or so, anything 9% or above is considered high.
ARM rates are based on a publicly available index plus a margin. The most common index is the 52-week yield on U.S. Treasury Bills. The margin is added to the index to arrive at the fully-indexed rate. A common margin is 2.75%. So if the 52-week T-Bill Yield was 5.00%, the fully-indexed rate would be 7.75%.
ARMs can vary in how often the rate can adjust, how much they can go up or down with each adjustment, and how far they can ever go above or below the initial rate. Loans that can adjust once a year are called 1-Year ARMs. In some places, 3-Year and 5-Year ARMs are available. The maximum changes are called caps. The most common cap is a change up or down of no more than 2% per year and 6% over the life of the loan.
Be wary of ARMs that change more frequently than annually or can go up more than 2% in a year. Be wary also of ARMs where rate changes don't also change your payment. Why? If rates go up and your payment doesn't, you'll pay more in interest and less in principal. When you go to sell your home, you'll have less equity to show for the payments you made.
Consider your answers to these questions when considering your options...
- Is a stable payment more important to you than the lowest rate? – Fixed/Adjustable and 1-Year Adjustable Rate Mortgages have lower starting rates. But if the possibility that your rate and payment could go up each year makes you nervous, stay with a Fixed-Rate Mortgage.
- How long do you intend to live in the home? – On average, people move or refinance their mortgages every 5 to 7 years. If you expect to remain in your home longer, a Fixed-Rate Mortgage could make more sense because your rate and payment won't change. If you expect to move or refinance sooner, a Fixed/Adjustable Mortgage may be more economical choice. You have a lower starting rate fixed for the first few years.
- How high are mortgage rates in general and where might they be moving? – Predicting where mortgage rates will move is virtually impossible to do with any certainty. Market rates are generally determined based on the inflation expectations of bond-market investors. However, we can tell you if current rates are relatively high or low based on recent history. Generally anything under 8% is low. If you'll be in a house long-term, you should give preference to a Fixed-Rate Mortgage. On the other hand, if rates are 9% or above, a Fixed/Adjustable with a shorter fixed period or an ARM may be better. Rates that high generally don't stay high for long. Your rate will adjust downward when rates fall without the cost of refinancing.
DCU currently offers a variety of Adjustable-Rate Mortgages (ARMs). Our Mortgage Specialists can help you decide which one is right for you. You can borrow for...
- 1 to 4 family primary residences
- Second homes
- Condominiums/Townhouses
- Mortgage refinancing
Rates are based on 15, 20, and 30 year programs, but you can choose any term you like up to 30 years. Required down payments are as little as 5%. However, you can avoid the expense of Private Mortgage Insurance (PMI) with a down payment of 20% or more.* Our 1-Year ARM rate can adjust up or down once a year based on the 1-Year Treasury Bill yield. Your rate may change no more than 2% each year and 6% over the life of your loan.
Our 1-Year ARMs have a wide variety of point options including a No Point/No Closing Cost program. Generally, if you are willing to pay more in points, your starting rate will be lower. We can assist you in determining which option makes the most sense for your situation.
* Please be aware that current market conditions may limit the amount of financing DCU can provide (examples: low property values, property located in a declining value area).
When you choose DCU servicing for your mortgage, you'll only deal with us for the life of your loan. We'll handle all your payments, escrow, and questions. You'll have access to your mortgage account through PC Branch, Easy Touch Telephone Teller, and DCU ATMs for getting information and making electronic payments.
Most important, you'll never have to worry about late or missing payments if your mortgage is sold.
Get Preapproved – Find out how much mortgage you can get before you shop for your home. Get it online for any program. Get it by phone for a 30-year Fixed-Rate Mortgage. Just call 800.328.8797 and select 3.
Apply online – Apply for a mortgage in all 50 states.
Apply by phone – Call 508.263.6700 or 800.328.8797 (select 3) anytime Monday – Friday 8:00 a.m. to 8:00 p.m. or Saturday 9:00 a.m. – 3:00 p.m., Eastern Time. A representative will guide you through the entire application process. Once you close your loan, your loan will be serviced by DCU for as long as you have it. You don't need to deal with the hassles that occur when your mortgage is sold over and over.
Apply at any DCU branch – For the branch nearest you, visit our DCU Branch Location page.
Our up-to-date Mortgage rates are available on our web site, at any DCU branch, or by calling the Information Center at 508.263.6700 or 800.328.8797.
Ease your loan payments, protect your family, and safeguard your credit rating. Payment Protection offered by Digital Federal Credit Union helps relieve the financial stress and worry related to making loan payments when your life takes an unexpected turn. To learn more about how Payment Protection works, select here.
DCU Insurance offers insurance with the personal service you deserve. So whether you have Homeowners Insurance or need it, DCU Insurance could be the right choice for you.
Remember that any insurance required as a condition of the extension of credit by the credit union need not be purchased from DCU Insurance but may, without effecting the approval of the application for credit, be purchased from an agent or insurance company of the member's choice. Insurance products are not deposits of Digital Federal Credit Union (DCU) and are not protected by the NCUA. They are not an obligation of or guaranteed by the credit union and may be subject to risk. Insurance is offered by DCU Financial Insurance Services, LLC, an affiliate of DCU. Business conducted with DCU Insurance is separate and distinct from any business conducted with the credit union. Any questions or concerns regarding this relationship may be addressed to the Office of Consumer Affairs.
DCU Realty is a full-service real estate agency serving home buyers and sellers in Massachusetts and New Hampshire. Our team of certified buyer agents can show you any home on the market - with no out of pocket cost to you. Put a licensed DCU Realty professional on your side before you start your home buying process so you can get the best home on the market at the best price.
Need to sell your home? DCU Realty has several plans to help you get full market value in the least amount of time.
Moving anywhere in the U.S.? DCU Realty's FREE Relocation Service will interview and refer a reputable real estate agent and other service providers to you - at no cost to you.
For more information on any of these great new services, give us a call at (888) 832-8929 or visit www.dcuhomes.com.
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Digital Federal Credit Union
220 Donald Lynch Boulevard PO Box 9130 Marlborough, MA 01752-9130 508.263.6700 • 800.328.8797 |
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