ONE YEAR ADJUSTABLE RATE MORTGAGE

This adjustable-rate mortgage (ARM) offers a low initial interest rate with an interest rate that adjusts annually after the first year. The rate cap per annual adjustment is usually 2 percent; the lifetime adjustment caps can be 5 percent or 6 percent. This type of mortgage may be right for you if you anticipate a rapid increase in income over the first few years of your mortgage.

As an example, you have one household income currently while your spouse is finishing college or the baby is still in diapers. You plan on a second income within three years. It lets you maximize your purchasing power immediately. It may also be the right mortgage for you if you plan to live in your home for only a few years.

Advantages:

• You can get a one-year ARM with a term from 10 to 30 years. The most typical
  ones are 10, 15, or 30 years.
  
  
• The one-year ARM is most often indexed to the weekly average yield of
  U.S. Treasury securities adjusted to a constant maturity of one year.
  
  
• The loan purpose can be to purchase a single family principal residences, including condos, and planned unit developments or an owner occupied multi-unit dwelling, such as a duplex. In addition, Manufactured homes are also eligible. (Manufactured housing units must be built on a permanent chassis at a factory and then transported to a permanent site and attached to a foundation.)
  
  
• You can get a one-year ARM with a term from 10 to 30 years. The most typical ones are 15 or 30 years.
  
  
• The one-year ARM is most often indexed to the weekly average yield of U.S. Treasury securities adjusted to a constant maturity of one year.

Variations:

A variation of a one year ARM is a six month product which has adjustments each six months, rather than at one year intervals. These products are often indexed to the LIBOR (London Interbank Offered Rate, which is essentially a Eurodollar index) or a six month bank CD (certificate of deposit) index.

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