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3/1 ARM interest rates

Interest rate animationA 3-year adjustable-rate mortgage has a fixed-rate of interest for the first 3 years & then adjusts annually for the next 27 years. The interest rate is usually lower than the 30-year & 5/1, ARM 7/1 interest rate. The benefit is a lower monthly mortgage payment (at least for the first 36 months) & higher borrowing capacity.

3/1 ARM rates today

Rotating question markFrequently Asked Questions About 3/1 ARMs

Q. Can you pay off an ARM loan early?
A. Sure. Just call the bank or mortgage servicer and ask for the payoff number.

Q. Do ARM loans always go up?
A. It may seem that the adjustable-rate mortgages always increase. That's because the initial interest rate, often called a teaser rate, is actually lower than the fully indexed rate (I'll save that term and explanation for another day). But ARMs can and do go down.

Q. Do you pay PMI on ARM loans?
A. If the down payment (or equity) is less than 20%, then you will have to pay private mortgage insurance (PMI).

Q. How can I get out of an ARM loan?
A. The obvious answer is to refinance, however before you go down refinance lane, give the bank or servicer a call, and ask if it's possible to modify your loan.

Q. How can I pay off my 15-year mortgage in 5 years?
A. Use our early payment mortgage calculator to estimate the monthly over payment.

Q. How high can ARM loans go?
A. Typically, the lifetime interest rate cap is 5% plus the start rate.

Q. What does a 2/2/5 ARM mean?
A. In this example, the 5/1 ARM has 2/2/5 caps:
2 - at the first adjustment, the interest rate cannot go up or down more than 2 percent
1 - second 2 represents every adjustment after the first one
5 - the interest rate will never change more than 5%, up or down

Q. Why use a 3/1 ARM?
A. If you will be in your house for less than three years, you will save money by choosing the 3/1 ARM because the interest rate is less than a 30-year fixed-rate mortgage. The 3/1 ARM is a popular choice for corporate and federal Gypsies.

Q. Does FHA offer a 3/1 ARM?
Yes, although, the 3/1 ARM is not originated directly from the FHA, but through approved lenders. The FHA permits lenders to offer two-adjustment options:

The interest rate can increase of two percentage points annually, and six points over the life of the mortgage.

  • the interest rate on the FHA 3/1 ARM can increase only one percentage point
  • annually, and five percentage points over the life of the mortgage; or