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Adjustable-rate Mortgages

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An adjustable-rate mortgage (ARM) is a loan with an interest rate that changes with market conditions on predetermined dates. The interest rate is fixed for an initial period, after which it may change depending on the index and cap structure for the remaining term of the loan.

For example, a 5/5 ARM would have a fixed rate for a period of five years and the rate would adjust up or down every five years after, depending on market conditions.1

When does it make sense to choose an adjustable-rate mortgage?

The lower rate of an adjustable-rate mortgage may make sense if you plan to own the home for a short period of time or if you plan to pay off the loan relatively quickly. An ARM can potentially save you thousands of dollars in interest over a fixed-rate mortgage.2

Our residential loan officers can help you decide which mortgage is right for your unique personal situation. Call us today at 732.587.1595.

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Common Mortgage Q&As

After the initial fixed-rate period on an ARM, the interest rate can increase or decrease based on the index rate. The index is the measure of interest rate changes a lender uses to decide the amount an interest rate on an ARM will change over time. The index is generally a published number or percentage, such as the average interest rate or yield on Treasury bills, and it is variable. The margin is the number of percentage points a lender adds to the index rate to calculate the ARM interest rate at each adjustment.
A periodic rate cap limits the amount that the interest rate can increase or decrease during any one adjustment period, regardless of how high or low the index  might be. Periodic rate caps are often called First Adjusted Interest Rate Cap, Subsequent Adjusted Interest Rate Cap, and Lifetime Rate Cap. The First Adjusted Interest Rate Cap applies to the first adjustment after the initial fixed-rate period. The Subsequent Adjusted Interest Rate Cap applies to any subsequent interest rate adjustments. The Lifetime Cap Rate sets a maximum limitation for the life of the loan.

A simple way to compare offers is to look at the Annual Percentage Rate (APR). The APR is the annual cost of a loan to a borrower and it includes other charges or fees. These charges and fees may include mortgage insurance, closing costs, points, and loan origination fees. When comparing mortgages, a higher APR indicates a larger upfront cost.

Lenders should always provide a document called a Loan Estimate when you apply for a mortgage. The "Comparisons" section of the Loan Estimate can help you determine which loan is the best fit for your personal circumstances. Not only does this section list the APR, but it also explains how much the loan will cost in the first 5 years. If you apply to multiple lenders, you can use the "Comparisons" section of Loan Estimates to compare offers between lenders.

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1 Please see our Loan Assumption and Disclosures page for details on adjustable-rate mortgages.

2 Ask a loan representative for details on our mortgage programs. Mortgages are available in New Jersey only. All loans are subject to credit approval.

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ARM Loan Assumptions and Disclosures - Rate Adjustment Details

State Licenses

NMLS Loan Originator ID: 409467

Loan applications are limited to the following states.

State License Number Expiration Date
New Jersey 409467 12/31/2021