Skip to main content

Nadlan Capital Group – Financing For Foreign Investors in the US Market

Nadlan Financing Logo
Menu
Nadlan Capital Group JPG

Adjustable Rate Mortgages (ARMs) are a category of home loans where the interest rate can change periodically based on changes in a corresponding financial index. The specific terms of ARMs can vary, but there are common types based on the frequency of interest rate adjustments and other features.

Hybrid ARMs

  • 5/1 ARM: The interest rate remains fixed for the initial 5 years and then adjusts annually.                                           
  • 7/1 ARM: The interest rate is fixed for the first 7 years before adjusting annually.                                                       
  • 10/1 ARM: The interest rate is fixed for the initial 10 years before adjusting annually.

Interest-Only ARMs

In an interest-only ARM, borrowers pay only the interest on the loan for a specified period, usually the first 5 or 10 years. After this period, the loan typically converts to a fully amortized loan, and both principal and interest are repaid.

Option ARM (Adjustable Rate Mortgage)

This type of ARM allows borrowers to choose from various payment options each month, including interest-only payments, fully amortizing payments or even a minimum payment that may not cover the full interest due. If the minimum payment is chosen, any unpaid interest is added to the loan balance, resulting in negative amortization.

Cash Flow ARM

Also known as a Payment Option ARM, this type of ARM gives borrowers the flexibility to choose from different payment options, including minimum payments, interest-only payments, or fully amortizing payments. Similar to the Option ARM, it carries the risk of negative amortization.

Intermediate ARMs

These ARMs have an initial fixed-rate period followed by a series of periodic adjustments. For example, a 3/3 ARM has a fixed rate for the first 3 years and then adjusts every 3 years thereafter.

Capped Rate ARMs

Capped rate ARMs have limits, or caps, on how much the interest rate can increase during each adjustment period or over the life of the loan. This helps protect borrowers from large and sudden interest rate increases.