A 10 1 ARM mortgage is a mortgage that has a fixed interest rate for the first 10 years, and then an adjustable interest rate for the next 1 year. After the first 10 years, the interest rate can be adjusted once per year.
The main advantage of a 10 1 ARM mortgage is that it allows you to keep your monthly payments low during the first 10 years of your loan. However, there are a few drawbacks to this type of mortgage that you should be aware of before you commit to it. The first drawback is that you could end up paying more interest over the life of your loan if interest rates go up during the adjustable period. This is because your monthly payments will only go up if rates go up, but they could potentially go up by a lot if rates increase significantly. Another drawback is that you may not be able to refinance your loan if you need to during the adjustable period. This can be a problem if you experience financial difficulty and need to lower your monthly payments, but it can also be an issue if you want to take advantage of lower interest rates by refinancing.
Overall, a 10 1 ARM mortgage can be a good option if you are sure that you will be able to afford the potential increase in payments if rates go up. However, it is important to understand the risks involved before signing on for this type of loan.
What is a 10 1 ARM Mortgage
A 10 1 arm mortgage is a mortgage that has a fixed interest rate for the first 10 years and then an adjustable interest rate for the remaining term of the loan. This type of mortgage can be beneficial for borrowers who expect to move or refinance within the first 10 years. However, there are some drawbacks to this type of mortgage that borrowers should be aware of.
Higher Interest Rates
One of the most significant drawbacks of a 10 1 ARM is that the interest rate is usually higher than a traditional 30-year fixed mortgage. The interest rate is also subject to change after the initial fixed-rate period, which could result in a higher monthly payment.
More Difficult to Qualify For
A 10 1 ARM is a loan with a fixed interest rate for the first 10 years and an adjustable interest rate for the remaining term of the loan. In other words, after the 10-year “teaser” period ends, your interest rate can increase or decrease annually based on current market conditions. The main benefit of a 10 1 ARM is that it offers a lower interest rate than a 30-year fixed-rate mortgage for the first 10 years of the loan. This can save you a significant amount of money in interest charges, which can help you pay off your loan faster or free up cash for other purposes.
However, there are some potential drawbacks to consider before deciding if a 10 1 ARM is the right choice for you.
#1 More difficult to qualify for
One potential downside of a 10 1 ARM is that it may be more difficult to qualify for than a fixed-rate mortgage. That’s because there’s more risk involved with an adjustable-rate loan – if market rates increase after you lock in your low introductory rate, your monthly payments could become unaffordable. As such, lenders may require higher credit scores and income levels when considering borrowers for this type of loan.
Shorter loan terms
Though a 10/1 ARM may sound like a great deal, there are some potential drawbacks to consider. Perhaps most importantly, you’re only getting a locked-in rate for the first ten years of the loan term. After that, the interest rate can change annually, and it could go up significantly. If you plan on selling your house or refinancing before the end of that ten-year period, you may not benefit from the lower interest rate and could end up paying more in interest overall.