Fannie Mae began offering the adjustable-rate mortgage (ARM) in the early '80s, when long-term interest rates were high and people needed a new type of financing to buy homes. These products start out with a lower interest rate, then the interest rate adjusts periodically. If you're confident that your income will increase steadily over the years, or if you plan to move in a few years and aren't concerned about potential rate increases, you may want to consider a Fannie Mae adjustable-rate mortgage. With an ARM, your interest rate may move up or down as market conditions change. Interest rate changes typically are subject to two caps,one for each adjustment period and one for the life of your loan. When discussing ARMs with your Fannie Mae-approved lender, be sure to ask what the maximum interest rate adjustments can be for any ARM product you consider. Fannie Mae-approved lenders offer a wide array of adjustable-rate mortgages:

This type of adjustable-rate mortgage (ARM) maintains the same initial interest rate for the first three, five, seven, or 10 years of your loan, depending on the term you choose. Your interest rate then adjusts annually, and can move up or down as market conditions change. Be sure to ask your Fannie Mae-approved lender about the interest rate caps for both the annual adjustments and for the life of the loan.

Advantages :

• Your initial interest rate will be lower than a fixed-rate mortgage, so you may be able to afford more home.




• You are protected against interest rate increases for the first three, five, seven, or 10 years of the loan, depending on which type of fixed-period ARM you choose

.


• You may have the option to convert your ARM to a fixed-rate mortgage at the first, second, or third interest rate adjustment dates.




• You have time to improve your financial position(i.e., salary increases) or accumulate additional assets before the interest rate adjusts at the end of the fixed period.

Details :

• The lifetime interest rate cap for fixed-period ARMs is typically 5 to 6 percentage points above your initial rate. Your annual cap during the adjustable period is typically 1 to 2 percentage points above or below over the current rate.

• Can be used to buy one- to four-family residences including second homes and condos, co-ops and planned unit developments. 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.)

To learn more :

This adjustable-rate mortgage (ARM) offers a low initial interestrate 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. That's because 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 :

• Maximizes your buying power immediately,especially if you expect your income to rise quickly in the next few years.

• A low first-year interest rate and a 2 percent annual rate cap.

• Some one-year ARMs let you convert to a fixed-rate loan at certain adjustment intervals - ask your Fannie Mae-approved lender which of their one-year ARMs include this option. Generally, conversions to fixed-rate mortgages are allowed at the third, fourth, or fifth interest rate adjustment dates.

Details :

• 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.

• Can be used to buy one-family, principal residences, including condos,and planned unit developments. 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.)