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Adjustable-Rate Mortgage

Lower Start.
Flexible Future!

Adjustable-Rate Mortgage (ARM)

An adjustable-rate mortgage (ARM) offers an initial fixed-rate period, often with a lower starting interest rate than a traditional fixed-rate mortgage. Our 5-year and 7-year ARM options give you another way to finance your home while considering your plans for the years ahead.

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What is an Adjustable-Rate Mortgage?

An adjustable-rate mortgage (ARM) starts with a fixed interest rate for a set period, typically 5 or 7 years with AACU. After that, the rate may increase or decrease at scheduled intervals based on market conditions.

Unlike a traditional fixed-rate mortgage, your interest rate and monthly principal and interest payment can change over time. An AACU Mortgage Loan Officer can explain how these adjustments work and help you compare your options.

Adjustable-Rate Mortgage Benefits

  • 5-Year or 7-Year Initial Fixed-Rate Options: Choose an initial period during which your interest rate stays the same.
  • Potentially Lower Starting Rate: An ARM may offer a lower initial rate than a comparable fixed-rate mortgage.
  • Rate Adjustment Limits: Caps help limit how much your interest rate can change after the initial fixed-rate period.
  • Convenient Application Process: Apply online and complete much of the mortgage process from home.
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Is an ARM Right for You?

An adjustable-rate mortgage may be worth considering depending on your homeownership plans, budget, and comfort with future interest rate changes.
 

Questions Worth Asking

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How long do you plan to stay in your home?

Consider whether you expect to move before or after the initial fixed-rate period ends.

How would a higher monthly payment affect your budget?

Your interest rate and payment could increase after the initial period. It's important to understand what those changes could mean.

Have you compared an ARM with a fixed-rate mortgage?

Look at the initial rates, loan terms, potential payment changes, and long-term borrowing costs before deciding.

Understanding ARM Rates
What Do All Those Numbers Mean?

Adjustable-rate mortgages have a few moving parts. Here's how they work using an example of a 5/6 ARM with a SOFR index, 2.75% margin, and 2/2/5 rate caps.

Initial Fixed-Rate Period (5)

Your interest rate stays the same for the first 5 years.

Adjustment Frequency (6)

After the initial fixed-rate period, your interest rate may adjust every 6 months.

Margin (2.75%)

The margin is a fixed percentage added to the applicable SOFR index value to determine the fully indexed interest rate, subject to the loan's rate caps and other terms.

Understanding Rate Caps (2/2/5)

First Adjustment Cap (2)

Your interest rate can increase by no more than 2 percentage points at the first adjustment.

Subsequent Adjustment Cap (2)

After the first adjustment, your interest rate can increase by no more than 2 percentage points at each scheduled adjustment.

Lifetime Cap (5)

Your interest rate cannot increase by more than 5 percentage points above its initial rate over the life of the loan.

SOFR Index (Secured Overnight Financing Rate) is a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities. The values are published by the Federal Reserve Bank of New York.

ARM Loan - AACU Adjustable-Rate Mortgage FAQs

An AACU ARM holds a fixed rate for an initial 5 or 7-year term, then adjusts periodically based on the SOFR index plus a set margin. Rate caps limit how much the payment can move at each adjustment. Compare a 30-year Fixed-Rate Mortgage if steady payments matter more to you.
SOFR, the Secured Overnight Financing Rate, measures the cost of borrowing cash overnight collateralized by Treasury securities, published by the Federal Reserve Bank of New York. AACU adds a fixed margin to this index at each rate adjustment. Check your eligibility before applying for an ARM.
Your AACU ARM rate stays fixed through the initial 5 or 7-year term you select at closing, then adjusts on a set schedule afterward, often every six months. The exact interval depends on your loan's specific terms. Compare VA Loans if you qualify for military benefits instead.
An ARM often suits buyers planning to sell or refinance before the initial fixed term ends, since the lower introductory rate saves money during those early years. Staying past that term means facing market-based adjustments. Compare a Swing Loan if timing a sale alongside your next purchase matters too.
Once the initial 5 or 7-year term ends, your AACU ARM payment adjusts based on the current SOFR index plus your margin, within the caps set at closing. Rate caps limit both single adjustments and lifetime movement. Check your eligibility before locking in your ARM's initial term.
Disclosures

Membership requirements apply. Restrictions and requirements apply. Program subject to change. Equal Housing Lender.

Air Academy Federal Credit Union: NMLS# 454287

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