FHA Adjustable Rate Mortgages

FHA offers 30 year amortizing mortgages in which the interest rate is adjusted periodically based on a preselected index and margin. Often, these loans provide low starting rates that are fixed for several years before the first adjustment.

Adjustable Rate Mortgages are often commonly referred to as ARMs and are sometimes advertised as a set of numbers. For example, a 5/1 FHA ARM is an adjustable rate mortgage in which the interest rate is fixed for the first 5 years before becoming a 1 year adjustable. ARM rate typically will start at a much lower rate than a standard fixed rate loan and thus may be perfect for members who do not expect to be in the house for a long period of time or simply need a lower payment to get started. Most ARM programs have caps that will limit any single rate adjustment as well as establish a lifetime maximum rate.  Typically on an FHA ARM the lifetime rate cap may be 5% over the start rate, meaning if the 5/1 rate started at 3.375% the rate could never exceed 8.375% lifetime.

With any adjustable rate mortgage, it is critical that the borrower understands how and when the rate may adjust.