QandAs: Loans

What is a 3/1 ARM Interest Only?

Answer:
With a 3/1 ARM interest only mortgage, borrowers have the option of making interest only payments for the first 36 months.

Once the initial interest only period ends, borrowers begin repayment of principal and interest. In addition, the mortgage rate adjusts annually for the remainder of the loan term.

Adjustable rate interest only mortgages are popular because they have a lower rate than fixed rate loans. This feature is desirable because homeowners enjoy a reduced monthly payment, and the option to purchase a more expensive home. Before accepting a 3/1 ARM interest only loan, it is important for borrowers to know the risks. For starters, reduced monthly payments are temporary. What’s more, adjustable rate home loans are very unpredictable, and rates can rise substantially.


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