A Conventional adjustable rate mortgage (ARM) also follows the guidelines established by Fannie Mae and Freddie Mac. These two stockholder-owned corporations purchase mortgage loans and package them into securities and sell the securities to investors. Thus, Fannie Mae and Freddie Mac provide an on-going flow of funds for home loans that results in easily accessible loans for all Americans.
The Fannie Mae and Freddie Mac guidelines establish the maximum loan amount and the underwriting parameters. The maximum conventional loan amount is the same for both a fixed rate and adjustable rate mortgage. The current maximum conventional adjustable rate mortgage amount is $424,100.
A conventional ARM loan is usually a 30-year amortization, but has an interest rate that is locked for a period shorter than the length of the loan. The most popular conventional ARM loan rate mortgage has a rate that is fixed for a period ranging from 3 years to 5 years to 7 years, and even up to 10 years. Historically, the shorter amount of time that the rate is fixed, the lower the interest rate. After the fixed period is exhausted, the interest rate will adjust every 12 months based upon a margin and an index. The margin can vary between 2.25% and 2.75% and is added to either the LIBOR or Treasury index at the anniversary date each year in order to arrive at the interest rate for the next 12 months.
If you’re first time home buyer, a conventional adjustable rate mortgage may be a great option, but conventional ARM loans can also be used for a primary residence, a second or vacation home and even an investment property. Contact us today to speak with one of our friendly experts who can help with your home buying experience.
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