A Guide To The FHA Adjustable-Rate Mortgage

What Is An FHA Adjustable-Rate Mortgage (ARM)?

An FHA adjustable-rate mortgage is an ARM backed by the Federal Housing Administration. Before we go into what’s offered, let’s briefly discuss how an adjustable-rate mortgage differs from a fixed-rate mortgage.

With a fixed-rate mortgage, your interest rate doesn’t change for as long as you have the loan. This means your principal and interest payment remains constant each month. The only way your monthly payment changes is with fluctuations in your taxes and insurance.

With an adjustable-rate mortgage, your rate is fixed for a given number of years at the beginning of your loan term. Once this fixed period expires, your rate can adjust up or down when called for in your contract. The amount of the increase or decrease in your interest rate is subject to caps and floors as well as a margin. The margin is added to an index to get your new interest rate.

In addition to a traditional fixed FHA loan, you can get an FHA ARM in 1-year, 3-year, 5-year, 7-year and 10-year varieties. These timeframes refer to how long the interest rate stays fixed at the beginning of the loan. In many cases, the term of the ARM is 30 years, although this can vary. Confirm with your lender. At the end of the fixed period, rates adjust once per year.

Rocket Mortgage® offers clients an FHA 5-year ARM.