All Holyoke Credit Union branches will be closed on Monday, January 21, 2019 in commemoration of Martin Luther King, Jr. Day. Online banking and mobile banking are available 24/7. Thank you for banking at HCU!

Adjustable Rate Mortgage

Adjustable Rate Mortgages, also called ARMs, offer a creative way for Holyoke Credit Union members to gain more buying power by initially securing a lower interest rate and paying a lower monthly payment for a specific period of time. An Adjustable Rate Mortgage is available to Holyoke Credit Union members in conforming and jumbo loan amounts up to $1,000,000 and features an interest rate that periodically adjusts with changing market rates. Your adjustable rate mortgage allows you to take advantage of lower interest rates in a falling rate environment and benefit from lower monthly payments. The initial interest rate on an Adjustable Rate Mortgage is usually lower than the lifetime interest rate on a fixed-rate mortgage.

ARM interest rates and the degree to which they fluctuate at the end of every adjustment period are determined by:

  • Index: Published economic indices such as U.S. Treasury Securities or London Inter-Bank Offered Rate (LIBOR) that are used to direct the adjustment.
  • Margin: A fixed percentage (usually 2.5 to 3 percent) that is added to the index at each adjustment period.
  • Rate Cap: Typically, the maximum amount your rate can increase or decrease per adjustment period (2%) and over the life of the loan (5% or 6%). This protects you in case of volatile market swings.

Benefits:

  • Allows borrowers to obtain a larger loan because qualification is based on lower interest rate
  • Saves buyer money in the early years because initial interest rate is lower than a traditional fixed-rate loan
  • Offers a variety of adjustment periods – Holyoke Credit Union offers ARMs that can be adjusted after an initial period of one, three, five, seven, or 10 years.

Best for people who:

  • Need extra borrowing power
  • Want to save money in the first few years
  • Plan to move or refinance in a few years
  • Are purchasing or refinancing at a time when interest rates are comparatively high

Other considerations:

  • All ARM interest rate adjustments are based on a published market index. Some indexes frequently used by Holyoke Credit Union include U.S. Treasury Securities and LIBOR (London Inter-Bank Offered Rate).
  • ARMs have defined adjustment periods that determine how frequently the interest rate can change. The initial period before the first adjustment can be brief (1 or 3 years) or quite long (7 or 10 years). After the initial period, the interest rate on most ARMs adjusts every year.
  • Once the initial period is up, the interest rate can increase or decrease based on an index plus a certain percentage, known as the margin. ARMs have rate caps, or ceilings and floors, on how much the interest rate can increase and, in some cases, decrease.
  • There are caps on the amount of the interest rate increase or decrease on the first change date after the initial period, on each subsequent adjustment, and over the life of the loan. For example, a 7/1 ARM may have a 5% cap on the change in the interest rate on the first change date (after the 7 year initial period), a 2% cap on the change in the interest rate each year after the first change date, and a 5% cap on the increase (but not the decrease over the term of the loan). This feature is often described as a 5/2/5.
  • Be sure to look at what the maximum monthly payment could be with the ARM you are considering to be sure you can afford the payment.
  • Even though the interest rate on an ARM may increase over the term of your mortgage, it may still be a good choice if you expect your income will increase over the life of the loan because your initial payments are lower than with a fixed-rate mortgage. If and when the interest rate and your payments increase, you will still be able to make the payments from your higher income.

 Holyoke Credit Union offers the following ARMs:

  • 10/1 ARM
  • 7/1 ARM
  • 5/1 ARM
  • 3/1 ARM
  • 1/1 ARM
Note: The first number is the length of the initial period – the number of years until the first interest rate adjustment. For example, the interest rate on a 10/1 ARM will not change for the first 10 years, but can change in the 11th year and each year thereafter.