With a Fixed Period Adjustable Rate Mortgage, payments remain the same amount, month to month, for a fixed period of 15 or 30 years. After that initial fixed-interest-rate period expires, the interest rate starts to adjust based on an index plus a margin. The amount by which the interest rate can adjust after the fixed period is usually subject to an interest rate cap structure.
In a subprime market, a shorter fixed-rate period is offered; the shorter the fixed-interest rate period, the lower the interest rate. We advise our fixed period ARM borrowers to carefully consider their time horizon when deciding on a fixed-period ARM. It is one of the least risky of all our mortgage products, but there are still some risks associated with the expiration of the fixed-interest rate period.
With your Direct Capital Funding loan officer, you will determine what much you can afford to pay on a monthly basis, and your term will be set based on that amount. It’s a safe way to borrow if you are unsure if your income will increase, decrease, or stay the same in the coming years. The best part is that you can shorten the length of this loan at any time by making supplemental payments along the way.