Adjustable-Rate Mortgage

It depends on your goals and comfort level. If you plan to sell your home or pay off the mortgage before the adjustable rate increases, you'll save money. However, an ARM may not be the right option if you don't plan on selling and want consistent mortgage payments.

An ARM's initial rate is fixed for a specified number of years at the beginning of the loan term and then adjusts every 6 months for the remainder of the term. The rate consists of a predetermined margin and will fluctuate due to variations in the index, which acts as the rate's benchmark.

• What is the Margin? The margin is a percentage point that remains the same throughout the life of the loan. Once the initial term ends, the new rate is determined by adding the margin to the index.
• What is the Index? Midland States Bank recognizes the Secured Overnight Financing Rate (SOFR) as the index for ARMS. SOFR is the successor to LIBOR.

With a fixed-rate mortgage, the interest rate and your monthly payments remain the same throughout the loan's life span. An adjustable-rate mortgage offers interest rates that periodically change, which means your monthly payments can also fluctuate. 

A 10/6 ARM loan is a type of adjustable-rate mortgage (ARM) that has a fixed interest rate for the first 10 years of the loan, and then the interest rate adjusts every six months after that. The interest rate on a 10/6 ARM loan can be lower than the interest rate on a fixed-rate mortgage, but it can go up or down after the 10-year fixed rate period.

A 7/6 ARM loan is a mortgage loan that has a fixed interest rate for the first 7 years of the loan, and then adjusts every 6 months after that. This type of loan can be a good option for borrowers who plan to sell or refinance their home within 7 years, or who expect their income to increase in the near future.

Here are some additional details about 7/6 ARM loans:

• The interest rate on a 7/6 ARM can be lower than the interest rate on a fixed-rate mortgage, but it can increase after the fixed-rate period ends.
• The amount that the interest rate can increase each time it adjusts is limited by the terms of the loan.

It is important to carefully consider the pros and cons of a 7/6 ARM loan before you decide if it is the right type of loan for you. Our Mortgage Experts are here to help guide you through the home financing process.

An ARM may make sense for borrowers who plan to sell their homes within the fixed-rate period, such as a 7/6 ARM or 10/6 ARM. This is because the interest rate will be fixed for a certain number of years, typically 7 or 10 years, and then it will adjust based on market conditions. If the borrower plans to sell their home before the adjustable-rate period begins, they will not be exposed to any potential interest rate increases.

Here are some other factors to consider when deciding whether an ARM is right for you:

• Your financial situation. Can you afford the monthly payments if the interest rate increases?
• Your plans for the future. Do you plan to stay in your home for a long time?
• The current interest rate environment. Are interest rates expected to rise or fall?

Our team at Midland States Bank is here to help discuss your individual circumstances to determine if an ARM is the right choice for you.

No, ARM loans can be used for other purposes, such as refinancing an existing mortgage or consolidating debt. However, they are most commonly used for home purchases because they could offer lower initial interest rates than fixed-rate mortgages. This can be helpful for borrowers who are on a tight budget and need to keep their monthly payments as low as possible.

There are two main types of ARM loans: 7/6 ARM loans and 10/6 ARM loans. A 7/6 ARM loan has a fixed interest rate for the first seven years, after which the rate can adjust every 6 months. A 10/6 ARM loan has a fixed interest rate for the first ten years, after which the rate can adjust every 6 months. It is important to note that the interest rate on an ARM loan can increase significantly after the initial fixed-rate period ends. Therefore, borrowers should carefully consider their financial situation and whether they can afford to make higher monthly payments if the interest rate goes up.

Here are some additional things to consider when choosing an ARM loan:

• The length of the initial fixed-rate period
• The frequency of interest rate adjustments
• The maximum interest rate that can be charged
• Any prepayment penalties

It is also important to talk to a mortgage lender to get pre-approved for a loan before you start shopping for a home. This will give you an idea of how much you can afford to borrow and what your monthly payments will be. Stop by your local Midland States Bank branch or contact our team today if you’re ready to get started on your home buying journey.

Yes, an ARM loan is a type of variable rate mortgage. With an ARM loan, the interest rate can change periodically, usually in relation to an index. This means that your monthly payments could go up or down over time. Variable rate mortgages can be a good option for borrowers who plan to sell their home or refinance their loan before the interest rate changes significantly.