What is a 5 year ARM?
Similarly, is a 5 year arm a good idea?
The advantage of a 5/1 ARM is that during the first phase, you get a much lower interest rate and payment. If you plan to sell in less than six or seven years, a 5/1 ARM could be a smart choice. In a five year period, that savings could be enough to buy a new car or cover a year's college tuition.
One may also ask, why is an arm a bad idea? Why might an adjustable-rate mortgage, or ARM, be a bad idea? When interest rates are rising it means you're taking all of the risk. With an ARM loan, after just a couple of rate resets, your initial interest-rate savings could evaporate.
Similarly one may ask, can you refinance a 5 year ARM?
Take the 5/1 ARM loan for example. This is a hybrid mortgage that starts off with a fixed rate for the first five years. And that's why a lot of people refinance away from their ARM loans and into the stability of a fixed rate. If you can do this and secure a lower interest rate at the same time, even better!
What is a 7 year ARM?
A 7/1 ARM is an adjustable-rate mortgage that carries a fixed interest rate for the first seven years of its term, along with fixed principal and interest payments. After that initial period of the loan, the interest rate will change depending on several factors.