| The FHA adjustable rate mortgage loan
(a.k.a. Variable, ARM) is one of the best adjustable rate mortgages available.You may use
this FHA loan program for 1-4 unit homes, as well as condominiums, townhomes, and PUDs. FHA does not offer an initial low "teaser" rate like most other
adjustable rate mortgages, therefore it will normally start at a slightly higher rate than
most other adjustable loans.
FHA adjustable mortgages are designed to protect the home owner from
larger payment and interest rates adjustments common with other loans.
The yearly interest can rise or decrease no more than 1% per year
vs. 2% for a conventional loan.
The lifetime cap of the FHA adjustable mortgage is no more than 5%
over the initial start rate vs. 6% for a conventional loan.
Therefore, a FHA can take 5 years before reaching its maximum rate
vs. a conventional loan can cap in only 3 years.
FHA's adjustable rate mortgage is based on the economic indicator
index called the 1-Yr. T-Bill. You can predict what the interest rate will adjust to by
working through the ARM interest rate formula which is as follows:
- Index + Margin = Fully Indexed Rate
(current 1 Yr. T-Bill Rate) + (percentage,
usually 2.75%) = Interest Rate
Example:
- Index = 5.25% + Margin of 2.75% = Fully Indexed Rate =
8.00%
Other benefits of the FHA adjustable rate mortgage is that you can
"streamline refinance" to a FHA fixed rate mortgage at anytime. Also, since you
qualify at the lower start rate, you can qualify for a larger loan amount and a higher
sales price home.
Learn how a FHA adjustable rate mortgage will affect
you for loan qualification by clicking  Here.
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