For home buyers and homeowners
Adjustable-Rate Mortgages (ARMs) in Michigan
Adjustable-Rate Mortgages (ARMs) hold a fixed rate for an initial period and then adjust, which can suit homebuyers who expect to move before the rate adjusts. The question to answer first is what happens to the payment if you are still there when it does.
- No credit pull to talk
- Licensed mortgage broker, NMLS 2041154
Adjustable-Rate Mortgage (ARM)
Key benefits
A Set Opening Period
The rate is fixed for the first five, seven or ten years, then it adjusts within the caps.
Room to Pay Down Principal
If the opening rate is lower than a fixed rate, the difference can go toward principal while it lasts.
Caps on Every Change
Limits on the first adjustment, each later one and the lifetime total.
When an adjustable beats a fixed, and when it does not
An adjustable is a bet on how long you will keep the loan. Held for the fixed period it can be the cheaper choice. Held beyond it, you inherit whatever the market has become.
| Factor | Adjustable | Fixed |
|---|---|---|
| How long the first rate holds | A set opening period, commonly five, seven or ten years, then it begins adjusting. | The entire term. Nothing moves. |
| What happens at the first adjustment | The rate resets to an index plus a margin, within caps, and can move again on a schedule after that. | Nothing happens. |
| Limits on how far it can move | Caps apply to the first move, each later move, and the lifetime total. Ask for all three. | Not applicable. |
| How long you plan to keep it | The deciding question. A known move or payoff inside the fixed period makes the bet sensible. | Irrelevant. The payment is the same either way. |
| What goes wrong | Plans change. Staying longer than intended is how an adjustable turns expensive. | Nothing to go wrong, which is what you are paying for. |
| The exit | Selling or paying off inside the fixed period. A refinance depends on qualifying and on the market then, so it cannot be planned on. | No exit needed. |
Talk through how long you will stay
Guidelines
Guidelines for this loan
What lenders usually check on an adjustable. Read them alongside the caps on your Loan Estimate.
Loan Types
Available for purchases and refinances.
Read the guideCredit Score
Set by the program and the lender; many conventional lenders look for 620 or higher.
Read the guideDTI Requirements
Typically below 50%.
Read the guideIndex and Margin
Both are on your Loan Estimate. Ask how each cap applies to them before you sign.
Read the guideOfficial sources
Check the rules at the source
Program guidelines change. These are the official pages we check them against.
Questions about this loan
If yours is not here, ask it on the call. There are no dumb questions.
Is an adjustable rate mortgage risky?
ARMs often start with a lower rate than a fixed loan, though not always, and they carry adjustment risk. If a known move or payoff falls inside the fixed period, an ARM can make sense.
Can I refinance out of an adjustable later?
Possibly. A refinance needs you to qualify again, at whatever rates and home value exist then, so plan as if you will keep the ARM past its fixed period.
Who is an adjustable actually right for?
Someone with a date. A transfer or a planned move that falls inside the fixed period, a home you expect to sell within a few years, or a payoff you can already document, such as a business sale that has closed. Even then, the payment at the highest rate your loan allows still has to fit your budget, because plans move. If the only reason is a lower opening payment, a fixed rate usually fits better.
What happens when the fixed period ends?
The rate resets to an index plus a fixed margin, and then adjusts on a set schedule after that. Three caps limit the damage: one on the first adjustment, one on each adjustment after it, and one on the lifetime total. Ask for all three before you sign, because the lifetime cap is the number that tells you the worst case you are agreeing to.
What should I test the payment against?
Two numbers. First the worst case: find the maximum rate in the Adjustable Interest Rate (AIR) table on page 2 of your Loan Estimate and run that payment in the mortgage calculator. Then the tax line: The year after a Michigan home sells, its taxable value resets to half of the assessor’s market value, so the seller’s tax bill is not your tax bill. Estimate the tax for an address.
How do I read the caps on my Loan Estimate?
Caps are usually written as three numbers, such as 2/1/5. The first is how far the rate can move at the first adjustment, the second is how far it can move at each adjustment after that, and the third is how far it can ever rise above the starting rate, all in percentage points. So with a 2/1/5 cap the rate can never be more than 5 points above where it started. Page 2 of your Loan Estimate shows these limits in its AIR table, along with the index, the margin and the lowest and highest rate the loan can reach. The highest is the number to test your budget against.
What our clients say
As a first-time homebuyer in Ferndale, I was unsure of some things. Samantha was awesome. She was extremely helpful and made sure I understood every part of the process.
I highly recommend Align Lending to anyone looking for a mortgage broker in Southeast Michigan. The team was knowledgeable, responsive, and easy to work with.
Samantha Shelton is amazing!! She helped me get into my first home in Ferndale. The closing process was easy I was able to take care of everything without taking a day off of work. Being a first time homebuyer was stressful but she provided clear communication and true experience guidance throughout the entire process
Individual experiences. Results vary.
Ask Samantha whether this loan fits
Bring how long you expect to keep the home. Samantha will walk through the caps on your Loan Estimate and the payment at the highest rate they allow.
- 1
Tell us what you are trying to do
Not what product you want. What you are actually trying to accomplish.
- 2
We look at your situation
Samantha works out what matters most for you specifically.
- 3
You leave with a plan
Your options, the tradeoffs, and your next step. No obligation to go further.
Start with your question
Talk it through firstAlign Lending LLC, NMLS #2041154, is a mortgage broker. Samantha Shelton, NMLS 1647301. Equal Housing Opportunity. Licensed in Michigan, Ohio, North Carolina, Florida, Louisiana and Texas. Program guidelines on this page are general and change over time; they are not a credit decision, a preapproval, a commitment to lend, or an offer of credit. Approval depends on your full application, the property and the lender's current guidelines.
