Washington Adjustable-Rate Mortgage (ARM)

Benefits of ARMs

1. Optimal Initial Interest Rates
   ARMs generally start with lower rates, making early payments more affordable.

2. Low Down Payment Options
   Down payments can be as low as 5%, making homeownership accessible across Washington’s competitive markets.

3. Flexible Payments
   If market rates decline, monthly payments may decrease during the adjustable period.

4. Great for Short-Term Plans
   Ideal for buyers planning to sell, relocate, or refinance within 5–10 years.

Eligibility Criteria

1. Minimum 5% Down Payment
   ARMs require at least 5% down, offering easier entry into the market.

2. Credit Score of 620+
   A score of 620 or higher is needed to qualify.

3. Adaptable Credit Requirements
   Lenders often allow flexibility for buyers with varied financial backgrounds.

4. Lower Monthly Payments (During Fixed Period)The initial fixed-rate phase provides manageable payments before adjustments begin.

Understanding Adjustable-Rate Mortgages (ARMs):

ARMs begin with a fixed-rate period—commonly 5, 7, or 10 years—followed by an adjustable-rate period. This structure creates a blend of stability and flexibility.Examples include:
‍5/6 ARM
7/6 ARM
10/6 ARM
These indicate how long the fixed period lasts before the rate adjusts every six months.

How ARM Rates are Calculated:

ARM rates are based on:
‍Index: Usually SOFR (Secured Overnight Financing Rate)
Margin: A set number added by the lender
Fully Indexed Rate: Index + margin
Rate Caps: Limits on how much your rate can increase at each adjustment and over the life of the loan
Rate caps protect borrowers from extreme market changes.

Pros & Cons of ARMs:

Pros:

1. Lower initial rates

2. Ease of refinancing during fixed period

3. Potential for lower payments if market rates drop

Cons:

1. Rates may rise after the fixed period

2. Requires careful financial planning

3. Risk of higher payments due to market conditions

Who Should Consider an ARM?

Short-Term Homeowners
‍Great for buyers who expect to move or sell within a few years.
‍Borrowers Planning to Refinance
‍Ideal for buyers expecting future refinancing opportunities or rate improvements.

Who Should Choose a Fixed-Rate Mortgage?

Risk-Averse Borrowers
‍Best for buyers who prefer predictable, stable monthly payments.
‍Long-Term Homeowners
‍Perfect for those planning to stay in their Washington home long term.
‍Buyers Seeking Simplicity
‍Ideal for anyone who wants a straightforward, unchanging mortgage structure.