5/1 ARM

A 5/1 ARM (adjustable-rate mortgage) has an initial interest rate that remains in effect for five years, after which time the rate is adjusted once annually. The "5" of "5/1" refers to the number of years the initial rate will apply; the "1" refers to the time interval between subsequent rate adjustments.

A 3-2-1 Buy-down is a feature that allows for a temporary interest rate reduction on a fixed-rate mortgage. In exchange for an upfront fee, the lender lowers the mortgage's permanent rate by 3 percent in the first year, 2 percent in the second year, and 1 percent in the third year. In the fourth year, the mortgage resets to its permanent rate. Sellers sometimes pay for the buy-down as an incentive to buyers. Buy-downs are used on purchases only.

What Does 5-6 Hybrid Adjustable-Rate Mortgage - 5-6 Hybrid ARM Mean?

An adjustable-rate mortgage with an initial five-year fixed interest rate after which the interest rate begins to adjust every six months according to an index plus a margin (or, the fully indexed interest rate). The index is variable while the margin is fixed for the life of the loan. 5-6 ARMs are usually tied to the six-month London Interbank Offered Rate (LIBOR) index.

One Year Adjustable-Rate Mortgages

A mortgage loan in which the interest rate changes based on a specific schedule after a “fixed period” at the beginning of the loan, is called an adjustable-rate mortgage or ARM. This type of loan is considered to be riskier because the payment can change significantly. In exchange for the risk associated with an ARM, the homeowner is rewarded with an interest rate lower than that of a 30-year fixed rate mortgage. When the homeowner acquires a one-year adjustable-rate mortgage, what they have is a 30-year fixed rate mortgage in which the rates change every year on the anniversary of the loan. 

However, obtaining a one-year adjustable-rate mortgage can allow the customer to qualify for a loan amount that is higher and therefore acquire a more valuable home. Many homeowners with extremely large mortgages can get the one-year adjustable-rate mortgages and refinance them each year. The low rate lets them buy a more expensive home, but they pay a much lower mortgage payment. 

The loan is considered to be rather risky because the payment can change from year to year in significant amounts.

10/1 Adjustable-Rate Mortgages

The 10/1 ARM has an initial interest rate that is fixed for the first ten years of the loan. After the 10 years is up, the rate then adjusts each year for the remainder of the loan. The loan has a life of 30 years, so the homeowner will experience the stability of a 30-year mortgage at a cost that is lower than a fixed rate mortgage of the same term. However, the ARM may not be the best choice for those planning on owning the same home for over 10 years.

2-Step Mortgages

An adjustable-rate mortgage that has the same interest rate for part of the mortgage and a different rate for the rest of the mortgage is called a 2-step mortgage. The interest rate changes or adjusts in accordance with the rates of the current market. The borrower, on the other hand, might have the option of making the choice between a variable interest rate or a fixed interest rate at the adjustment date

Those borrowers who make the decision to take a two-step mortgage are taking the risk of the interest rate of the mortgage adjusting upward after the expiration of the fixed-interest rate period. Many borrowers who take the two-step mortgage have plans of refinancing or moving out of the home before the period ends.

5/5 and 5/1 Adjustable-Rate Mortgages

The 5/5 and the 5/1 adjustable-rate mortgages are amongst the other types of ARMS in which the monthly payment and the interest rate does not change for 5 years. The beginning of the 6th year is when every 5 years the interest rate is adjusted. That’s every year for the 5/1 ARM and every 5 years for the 5/5 

Other types of adjustable-rate mortgages include the 5/5 and 5/1 ARMs. With these types, the interest rate and monthly payment remain the same for 5 years.

Starting with the 6th year, the interest rate is adjusted every 5 years (for 5/5 ARM) and every year (for 5/1 ARM). 

These particular ARMs are best if the homeowner plans on living in the home for a period greater than 5 years and can accept the changes later on.

5/25 Mortgages

The 5/25 mortgage is also called a “30 due in 5” mortgage and is where the monthly payment and interest rate do not change for 5 years. At the beginning of the 6th year, the interest rate is adjusted in accordance with the current interest rate. This means the payment will not change for the remainder of the loan. This is a good loan if the homeowner can tolerate a single change of payment during the loan period.

3/3 and 3/1 Adjustable-Rate Mortgages

Mortgages where the monthly payment and interest rate remains the same for 3 years are called 3/3 and 3/1 ARMs. At the beginning of the 4th year, the interest rate is changed every three years. That is 3 years for the 3/3 ARM and each year for the 3/1 ARM. This is the type of mortgage that is good for those considering an adjustable rate at the three-year mark.