3/27 Adjustable Rate Mortgage - A 3/27 ARM is a mortgage that is initially a fixed rate (for the first 3 years), and then adjusts for the next 27 years. During the 3 year fixed period, the rate will not change, and neither will your monthly payments.
The 3/27 mortgage gives you a longer period of fixed payments but comes with a slightly higher rate than a 2/28 arm would.
The 3/27 ARM, or adjustable rate mortgage is a home loan that is fixed for the first 36 months and then it becomes adjustable thereafter. After the initial fixed rate period of 3 years the rate will adjust usually every 6 months, semi-annually, or every 12 months, annually. The 3/27 will have some rate caps meaning that the rate cannot go any higher than a certain amount and any lower than a certain amount but you will need to check with your mortgage professional to find this information out beforehand.
Many home buyer with bad credit history use 3/28 ARM's, with the intention of repairing their credit profiles before the three years fixed rate period is up and refinance to a permanent mortgage with a lower interest rate.
The 3/27, like all ARMs, still is amortized over the full 30 years. Which means your payments are figured by using the full 30 year term. Many consumers have a tendency to get this confused. It is basically the same as a 30 year fixed, for the first 3 years, and then it will adjust.
A 3/27 ARM is usually .1-.25% higher then a 2/28 ARM. If you intend to refinance within 2 years you may be better off with a 2/28 ARM and the lower payment it carries.
The 3/27 ARM often has a prepayment penalty associated with it. If you think you may be in a position to pay the loan off sooner, you may want to negotiate a shorter prepay or consider a 2/28.
A 3/27 Adjustable Rate Mortgage ARM is typically safer than the more popular 2/28 Adjustable Rate Mortgage ARM because it gives you one year longer for your fixed rate period.
Benefits of an ARM - An ARM allows you to receive more money at a lower interest rate than a fixed rate loan. If you are planning to move within a few years, you can save money and avoid rising payments.
Adjustable Rate Mortgages start out with a lower payment than fixed rate mortgages, with the possibility of adjusting higher in the future if interest rates rise. This can be beneficial if you want the lower payment now, but expect your salary to increase in the future.
The fixed interest rate portion of an ARM can be as short as the first month of the loan, or be fixed all the way up to the first 10 years of the loan. Depending on how long you are going to be in the property you can choose an ARM . Each ARM also has different guidelines regarding how much the the interest rate can fluxuate at each adjustment, and what the lifetime maximum and minimum interest rates are for the loan. If you think that you are likely to see the adjustment period you should look at these numbers since they will control how quickly your payments can go up or down.
Many investors choose adjustable rate mortgages on houses they will be rennovating for resale. The lower start rate means a lower monthly payment and increased cash flow. Many investors plan to resale the house in a short period of time so rate adjustment isn't an issue.
Many commercial loan programs are ARM's. This is due to owners of income generating properties usually prefer mortgages with lower monthly payments. Similar to residential mortgages, some commercial ARM loans have an initial fixed rate period.
If structured correctly and with discipline, an interest only mortgage can help you pay-down your principle much faster than a regular fixed rate mortgage.
Adjustable ARM mortgages can be an excellent choice when short term interest rates, such as the Fed Funds Rate, are low and 10 year bond and treasury yields are high. However, under certain market conditions such as those we have experienced through the end of 2006 and well into 2007, the difference in payments between Adjustable ARM and Fixed Rate mortgages diminishes, providing borrowers in ARM mortgages with a strong reason to refinance and lock in a fixed rate at a low payment.
If you only plan on being in your home for a short period of time, then an ARM can be advantageous to you. If you know you will only be in the home for 3-5 years, then you would be better off taking a 5 year ARM. The lower interest rate that it offers will save you hundreds of dollars while in the home.
If you would like to lower your monthly mortgage payment to be able to apply more money in other places of your life an ARM loan may be right for you. An ARM loan should provide you a much better interest rate than a fixed rate loan, therefore giving you a lower payment each month. This in turn will free up some money each month in order for you to use the money where it is needed more at this time.
When considering an ARM loan you should take into consideration your lifestyle and future goals. ARM loans can benefit you with the reduced interest payments because of a lower interest rate which will allow you to invest more money into principal reduction and other valuable investments.