A 10/1 ARM loan is a cross between a fixed-rate loan and a variable-rate loan. After an initial 10-year period, the fixed rate converts to a variable rate. It remains variable for the remaining life of the loan, adjusting every year in line with an index rate. This index rate fluctuates with market conditions. Your monthly mortgage payment could increase substantially if the index rate increases substantially. If the index rate declines, then your monthly mortgage payment could decrease. Some 10/1 ARMs set limits on how high or low the rate may change.

The 10/1 ARM has a fixed rate for 10 years and an adjustable rate for the remaining life of the loan. Your monthly payment could increase substantially after the first 10 years if the index rate increases. By contrast, a 30-year fixed-rate loan has a fixed rate and fixed monthly payment for the entire 30-year term. A 15-year fixed-rate loan has a fixed rate and fixed monthly payment for the entire 15-year term.

Learn more about the differences between a 10/1 ARM and a 15- or 30-year fixed-rate loan.

If you plan to sell your home or pay off your mortgage within 10 years, then a 10/1 ARM may be right for you. Rates on ARMs are usually lower than rates on comparable fixed-rate mortgages. So, their monthly mortgage payments are lower. The 10/1 ARM offers these lower rates and the predictability of a fixed-rate mortgage for the first 10 years.

If you’re not going to move or pay off your loan within 10 years, then you need to consider the risk involved with an ARM. After the initial 10-year period, the rate on your loan will adjust every year in line with an index rate. When that rate goes up, so will your interest rate and your monthly mortgage payment. A 10/1 ARM may still be right for you if you can withstand fluctuations in your monthly mortgage payment. Keep in mind, however, it is difficult to predict market or life changes.

Contact us today at 855-673-5250 and a dedicated mortgage loan officer can help you decide if a 10/1 ARM loan is right for you.