Predictable payments

Protection from rising interest rates

Rate lock options

Prefer regular payments with no surprises

Are on limited or fixed incomes

Plan to stay in their home a long time

Are purchasing or refinancing at a time when interest rates are comparatively low

Key features: Interest rate remains the same for the life of the loan.

Customer benefits: Provides protection against rising interest payments.  Predictable payments make budgeting for the future easy.

Homebuyer profile: Especially attractive in a low interest-rate environment and ideal if you plan to stay in your new home for at least 7 years.

Assist borrowers in obtaining a larger loan amount

Save money in the early years

Have a variety of adjustment periods

Need extra borrowing power

Want to save money in the first few years

Plan to move or refinance in a few years

Are purchasing or refinancing at a time when interest rates are comparatively high

Index: Published economic indices such as U. S. Treasury Securities or London Inter-Bank Rate (LIBOR) that are used to direct the adjustment.

Margin: A fixed percentage (usually two to three percent) that is added to the index at each adjustment period.

Rate Cap: Typically the maximum amount your rate can increase or decrease per adjustment period (2%) and over the life of the loan (6%).

Key features: Interest rate (and monthly payments) can rise or fall as a result of annual rate adjustments, which occur throughout the term of the loan in response to market fluctuations. ARMs generally have a rate cap.

Customer benefits: The initial interest rate (and monthly payment) generally start out lower that that of a fixed-rate mortgage and help you ease into your monthly payments.

Homebuyer profile: An ARM may be a good choice in a higher interest rate environment or if you need a lower rate to help qualify a larger loan amount.

Key features: Offers a fixed interest fate for a designated period (3, 5, 7, or 10 years) then adjusts annually.  Often referred to as 3/1, 5/1, 7/1, and 10/1 ARMs.

Customer benefits: Initial interest rate and monthly payments are lower that that of a fixed rate, so payments are more manageable during the introductory period.  The rate is usually higher that the 1-year ARM, but payments are dependable for a longer period.

Homebuyer profile: This option can be a practical financial-planning tool for forward-thinking homebuyers who intend to move in 5, 5, 7, or 10 years.  More affordable loan option in a higher rate environment.

Key features: Offers an option to convert your loan to a fixed-rate mortgage after a certain period of time.

Customer benefits: The advantage of a lower interest rate with an opportunity to change to a fixed rate when you can better afford it.

Homebuyer profile: A good choice for homebuyers who need a lower qualifying rate today, but who may want to switch to a fixed rate in the future without refinancing.