FHA Adjustable Rate Mortgages:

An ARM is an Adjustable Rate Mortgage. Unlike fixed rate mortgages that have an interest rate that remains the same for the life of the loan, the interest rate on an ARM will change periodically. The initial interest rate of an ARM is lower than that of a fixed rate mortgage, consequently, an ARM may be a good option to consider if you plan to own your home for only a few years; you expect an increase in future earnings; or, the prevailing interest rate for a fixed rate mortgage is too high.

FHA offers a standard 1-year ARM and four "hybrid" ARM products. Hybrid ARMs offer an initial interest rate that is constant for the first 3-, 5-, 7-, or 10 years.

3/1 ARM

This Product is FIXED for the first 3 Years and then adjusts one (1) time per year.

Maximum Adjustment is 1% per year.

Maximum Lifetime Adjustment is 5%.

The interest rate cap structure provides some protection from large interest rate swings. There are two types of caps: (1) annual, and (2) life-of-the-loan. The annual cap restricts the amount your interest rate can change, up or down, in any given year, while the life-of-the-loan cap limits the maximum (and minimum) interest rate you can pay for as long as you have the mortgage.

Rates Available Starting at 2.75% (APR 3.125%)

An ARM has four components: (1) an index, (2) a margin, (3) an interest rate cap structure, and (4) an initial interest rate period. When the initial interest rate period has expired, the new interest rate is calculated by adding a margin to the index.

Acceptable index options on FHA insured ARM loan transactions are 1) the Constant Maturity Treasury (CMT) index (weekly average yield of U.S. Treasury securities, adjusted to a constant maturity of one year)

The Margin is fixed

The Index is based on Constant Maturity Treasury (CMT)

MARGIN= 2.25%

INDEX= The Constant Maturity Treasury (CMT) index (weekly average yield of U.S. Treasury securities, adjusted to a constant maturity of one year)