QandAs: Loans

What is a 3/1 ARM?

Answer:
Borrowers who select a 3/1 adjustable rate mortgage

loan receive a fixed rate for the initial three years. After the fixed rate period concludes, the mortgage rate will adjust every year for the duration of the loan.

There are many reasons why a borrower opts for a 3/1 ARM. In most cases, the homebuyer wants to obtain the lowest monthly payment possible. Additionally, because adjustable rate loans have lower rates, homebuyers can usually buy a more expensive home. Unfortunately, the low fixed rate is temporary. Interest rates will increase, decrease, or remain the same with each rate adjustment. In turn, monthly payments may also rise and fall.


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