Would You Rather Do the Two Steps

With most ARM hybrids, the mortgage interest rate is fixed for three, five, or seven years and then adjusts annually for the remaining term of the mortgage. In contrast, a two-step (5/25, 7/23/ 10/30) starts with a low interest rate; then after the initial fixed-rate period of, say, 3, 5, 7, or 10 years, the interest rate adjusts to market and then holds constant for its remaining years. However, if the market for fixed rates stands higher at the time of adjustment, you could refinance into another lower cost ARM.

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