Real Estate City Information: Mortgages

Adjustable-Rate Mortgages (ARMs)

Two-Step Mortgage: This special type of ARM provides the benefit of initial low rates with the stability of longer term financing because it adjusts only once - either at seven years or at five years. After that initial adjustment, the mortgage maintains a fixed rate for the remaining 23 or 25 years of a 30-year mortgage repayment term. For example, if your initial interest rate were 8%, you would pay that rate for the first seven (or five) years. Then, for the remaining 23 (or 25) years, you would pay an interest rate that is indexed to the value of the 10-year U.S. Treasury security on the adjustment date. (At the adjustment date, there is no additional refinancing cost, no forms to complete, and no re-qualification necessary.) This new rate can never be more than 6 percentage points higher than your old rate. There are no limits on how much lower the adjusted interest rate can be.