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Your Mortgage FAQs Answered

If you've set a goal of buying or refinancing a home, chances are you have some questions you’d like answered first. Some commonly asked mortgage questions are answered here.

What is an adjustable-rate mortgage?

With an adjustable rate mortgage (ARM), the interest rate and monthly payments can change as interest rates change. The rate is fixed initially and is subject to being reset based on the market index it’s tied to. The big benefit to the borrower is that ARMs usually have interest rates that are initially lower than those of fixed-rate mortgages. ARM loans are great for people who are thinking about refinancing or moving after a certain number of years and for those who want to utilize the lower rate for improved cash flow or to apply monthly savings to additional principle reduction.

What does the slash “/” mean in the ARM number?

When looking at ARMs, the number before the slash represents how many years the rate is initially fixed, and the number after the slash is how often it adjusts after the initial fixed period. A 3/1 ARM is fixed for the first three years, and the rate adjusts each year after that.

What is a 5/5 ARM?

A 5/5 ARM is an adjustable rate mortgage where the rate adjusts every five years. Redwood Credit Union offers this loan option because it gives stability during the initial fixed-rate period and then longer periods of time in between potential rate changes. When the rate adjusts after five years, there’s a life cap, meaning it can’t increase by more than a certain percentage for the life of the loan.

What is the cap on my 5/5 ARM?

Your 5/5 ARM has an initial adjustment cap of 2% with the same 2% cap for each periodic adjustment and a life cap of 5% max adjustment above the start rate. Rate adjustments can move in an upward or downward direction. Your loan officer would be more than happy to discuss what potential movement might look like in the future for peace of mind and budgeting.

I've heard that ARMs get sold off to other lenders. Is that true?

RCU retains all servicing rights for our mortgages. You can be assured you will receive personal service from RCU for the life of your loan.

What is a Fixed-Rate Mortgage?

Fixed-rate loans have an interest rate and payment that is fixed for the life of the loan. The monthly payment level also remains constant, which can be reassuring. On the flip side, if interest rates go down you won’t be able to take advantage of the decrease in rate as you might with an ARM. These loans are best suited for those who intend to stay in their home or keep their current mortgage long term.

If you’re now ready to begin the process of purchasing or refinancing a home but have concerns or questions about next steps, know that we’re here to help you make the right decision for your unique situation. We’ll also stay with you through the entire home-buying process. To learn more, visit our Home Loan Center or call 1 (800) 609-9009.