Rates Frozen for Three Years in 3/1 ARM Mortgage Loan

The 3/1 Year ARM mortgage rates is a type of rate that is fixed for 3 years and after the end of 3 years the loan becomes an adjustable rate mortgage. The adjustable rate is associated with the 1 year treasury index and it is added to the pre determined margin which is usually between 2.25 and 3.0%. After the 3rd year you should ask your loan agent as to what is the life cap, margin and periodic caps. The loan becomes fully amortized in 30 years if the normal payment schedule is followed. The 3/1 Year ARM mortgage rates is the best program for you in case you are planning to stay in your home for 3 to 5 years. Your rate is locked at the introductory rate for the first 3 years and then it adjusts downwards or upwards from the 4th year.

The advantage of this program is that it carries a lower rate than other fixed rate products. Hence this factor could lead to considerable savings for the customer. However you should be able to monitor your financial activities regularly to take maximum advantage of this program. The homeowner should mark his calendar near the end of the introductory period so that he is prepared for to adjust for any type of upward movement in the rate.

There are some disadvantages also such as an unexpected, abrupt rise in the interest rates in case of a booming economy. This leads to large, annual lifetime caps. There are some plans that also have a negative amortization option that leaves the borrower with more amount payable than the initial loan amount. Hence an experience loan agent may easily trap you in this type agreement where the initial payments seem very affordable and attractive. The borrower is not aware of the fact that the lower rates are compensated by accrual payments to the principal.

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