Fixed/Adjustable Mortgages
Best value for most homeowners
What is a Fixed/Adjustable Mortgage?
- A 30-year mortgage
- In the case of a 5/5 Mortgage, the rate is fixed for the first five years, and can change down or up only once every five years thereafter until the end the loan
- In the case of a 3/1, 5/1, 7/1, or 10/1 Mortgage, the rate is fixed for first three to ten years, then can change up or down once every year thereafter until the end of the loan.
- The starting interest rate is almost always below a 30-Year Fixed-Rate Mortgage
- Starting interest rate is always above the 1-Year ARM
If you are only going to be in your current home 5 to 10 years like most people, why pay a higher rate to fix your rate for 30 years? You can save a lot of interest by choosing a Fixed/Adjustable Mortgage. In the $200,000 mortgage example below, a 5/1 Fixed/Adjustable Mortgage saves you $2,501.66 over the first five years and $2,442.30 over the first seven years.
In this rate scenario, the 5/1 and 1-year ARMs are more economical than the fixed-rate mortgage.
Rising rate assumptions: starting rates are 6.000% for 30-year fixed, 5.750% for 5/1 fixed/adjustable, and 5.250% for 1-year ARM. The 1-year ARM rises 0.15% each year. The 5/1 goes to 6.000% in year 6 and rises 0.15% each year thereafter. Rates for illustrative purposes only.
When is a Fixed/Adjustable Mortgage the right choice?
Consider your answers to these questions when considering your options...
- 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 than 7 years, a 5/5 Mortgage could make more sense because your rate and payment will rarely change. If you expect to move or refinance sooner, a 3/1 or 5/1 Mortgage may be more economical choice. You have a lower starting rate fixed for the first few years.
- Do you need the smallest possible payment? – Fixed-rate mortgages have the highest rates because the lender assumes all the risk that rates may go up. If you need smaller payments to get into a home, Fixed/Adjustable and 1-Year ARMs have lower starting rates and payments than fixed.
- Is a stable payment more important to you than the lowest rate? – The Fixed-Adjustable gives you stable rate and payment for up to ten years. Realize that if you want to fix your payment longer than that, it could cost you thousands in extra interest.
- How high are mortgage rates in general and where might they be moving? – Predicting where mortgage rates will move is impossible to do with any certainty. Market rates are generally determined based on the inflation expectations of bond-market investors, foreign demand for US Treasury securities, and the impact of Federal Reserve monetary policy. However, we can tell you if current rates are relatively high or low based on recent history. Generally anything under 7% is low. If you'll be in a house longer than 7 years, you might prefer 5/5 Mortgage or 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.
What Fixed/Adjustable options are available at DCU?
- NEW 5/5 Fixed/Adjustable
This is the best option for most members. It's a 30-year mortgage that starts out with a low fixed rate for 5 years. Thereafter, the interest rate may change no more than 2% down or up every 5 years and 5% in either direction over the life of the loan. That's just one adjustment in the first 10 years.
- 3/1 Fixed/Adjustable
This 30-year mortgage starts out with a low fixed rate for 3 years. Thereafter, the interest rate may change no more than 2% each year and 5% over the life of the loan.
- 5/1 Fixed/Adjustable
This 30-year mortgage starts out with a low fixed rate for 5 years. Thereafter, the interest rate may change no more than 2% each year and 5% over the life of the loan.
- 7/1 Fixed/Adjustable
This 30-year mortgage starts out with a low fixed rate for 7 years. Thereafter, the first rate change will have a cap of 5% and each additional rate change will be capped at 2%. The life time cap will be 5%.
- 10/1 Fixed/Adjustable
This 30-year mortgage starts out with a low fixed rate for 10 years. Thereafter, the interest rate may change no more than 2% each year and 5% over the life of the loan.
Our Mortgage Specialists can help you decide which one is right for you. You can borrow for...
- 1 to 4 family primary residences
- Condominiums/Townhouses
- Mortgage refinancing
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.^ Once the fixed period ends, your 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.
* Loan to values over 90% are subject to additional loan level pricing adjustment.
* 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).
No Hassle DCU Servicing
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.
How to Apply
Apply by phone – Call 508.263.6700 or 800.328.8797 (select 3) anytime Monday through Friday 8:00 a.m. to 9:00 p.m. or Saturday 9:00 a.m. through 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.
For Current Rates or More Information
Our up-to-date Mortgage rates are available on our web site, at any DCU branch, or by calling the Information Center.
Payment Protection
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. Learn more about Payment Protection.
Need insurance on your home?
 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.
Buying or Selling a Home?
 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 Union220 Donald Lynch Boulevard PO Box 9130 Marlborough, MA 01752-9130 508.263.6700 • 800.328.8797
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© 2011. Digital Federal Credit Union
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