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Adjustable-Rate Mortgages in Florida

If you hope to purchase a home in Florida and need mortgage financing, Dash Home Loans will find the smartest lending choice for you. For some borrowers, this means securing an adjustable-rate mortgage, otherwise known as an “ARM.”

Unlike fixed-rate mortgages, which have static interest rates throughout the lifetime of the loan, ARMs have variable rates. Though this unpredictability isn’t for everyone, it can help certain homeowners pay off their mortgages quickly. 

Ready to get started? Getting approved for an ARM in the Sunshine State is super fast with Dash!

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What Is an Adjustable-Rate Mortgage? 

Most prospective homeowners know all about interest. But, if you’re completely new to the real estate world, interest is the cost of borrowing money. It’s expressed as an annual percentage rate (APR) and typically changes based on market conditions. It’s also influenced by factors in your control, like your credit score and home price.  

With a fixed-rate mortgage, the interest stays the same until you pay off the loan. But with an ARM, the interest rate changes. 

At first, you’ll benefit from a “teaser” rate that’s delectably low. But after the teaser rate period ends, your APR will adjust on a yearly or even monthly basis.  


Understanding Florida Adjustable-Rate Mortgages

Now, we’re going to dig deeper into ARMs. If these details get too confusing, feel free to reach out. We’ll pair you up with a Mortgage Coach who can break things down into simpler terms. 

Normally, homeowners get the hang of things once they understand these concepts:

  • Index: An index is a benchmark interest rate that reflects general market conditions. This rate varies. 
  • Margin: The ARM margin is the number of percentage points added to the index after the initial rate period ends. The margin is determined in your loan agreement.  
  • Initial and Periodic Caps: The initial adjustment cap determines how much your interest rate can rise or fall the first time it adjusts. This protects the lender and borrower from super high or low APRs. Periodic caps safeguard homeowners by dictating how much the interest rate can change during an adjustment interval.   
  • Lifetime Cap: The lifetime cap is the maximum interest rate a borrower can expect to ever pay.

ARMs are expressed using two numbers. 

The first number is the length of your initial teaser rate period. 

The second number is how often the rate will adjust after the fixed-rate period.

With a 5/6 ARM, for instance, you’d benefit from a fixed rate for five years followed by a variable rate that adjusts every six months.    

Most ARMs also have an adjustment cap. This limits how much the interest rate can change at each adjustment period. 

For instance, a 5/1 ARM with a 2/2/5 cap structure means your rate won’t change for the first five years. But during the sixth year, your rate can increase by a maximum of 2% (the first “2”). In the following years, your rate can increase by a maximum of 2%, as noted by the second number. However, your APR can never increase by more than 5% (the last number).


Adjustable-Rate Mortgage Requirements for Florida Borrowers  

We know what you’re thinking: “Lower interest rates to start? That’s the mortgage option for me!” 

But before you sign on the dotted line, you must make sure you’re eligible. Though financing requirements vary from lender to lender, Florida borrowers must generally have:

  • A credit score of 620 or higher. Borrowers with less-than-awesome credit (think: as low as 500) may still qualify for an ARM. Just make sure to double-check your lender’s credit requirements.  
  • A down payment of at least 5%. In some instances, borrowers can put as little as 3.5% down. However, if you put less than 20% down, you’ll be expected to pay private mortgage insurance. 
  • A debt-to-income ratio under 45%. To determine your debt-to-income ratio, add up your monthly debt payments and divide them by your gross monthly income.

Do these requirements make you feel jittery and nervous? If so, take a deep breath and reach out. We’ll connect you with a Mortgage Coach who can walk you through the prequalification1 process step-by-step.  


Pros & Cons of Adjustable-Rate Mortgages

Let’s start with the positives. 

ARMs allow Florida homeowners to save money, at least at first. Since the APR is lower during the initial rate period, homeowners benefit from a lower mortgage payment. 

Depending on your financial goals, you can take that extra money each month and put it toward a higher-yielding investment. 

Savvy borrowers also use ARMs to purchase starter homes or fixer-uppers. Why? Because if a homeowner buys a beachside bungalow using a 7/6 ARM, they have seven years to remodel while paying a lower APR. Before the interest rate adjusts, they can sell the home and never worry about higher rates. 

Of course, ARMs have serious disadvantages too. 

Namely, rates and payments can rise significantly during the lifetime of a loan. If your budget isn’t prepared for these shocks, you could risk foreclosure. Unpredictability aside, many homeowners steer clear of ARMs because they are more complicated than a traditional, 30-year fixed mortgage. 


ARM vs Fixed-Rate Mortgage: Which Is Right for You?

When you connect with a Mortgage Coach at Dash, they can help you weigh the merits of securing an ARM instead of a fixed-rate mortgage. During these conversations, they’ll likely ask you to consider these questions:

  • How long do you plan on staying in the home? If this is your starter home, an ARM could be a good choice. Your payment will be lower for the first three to five years, allowing you to save up for a larger house. 
  • What’s the interest environment like? When rates are relatively high, ARMs make sense because borrowers won’t be hitched to an astronomical APR. But when rates are relatively low, fixed-rate mortgages are a better choice. 
  • Could you afford your mortgage if interest rates rise? Depending on your loan terms, monthly ARM payments can vary significantly. If and when this happens, you risk defaulting on your mortgage.  

Still unsure if an ARM is right for you? Contact Dash Home Loans online or give us a call at 305-614-2746 today!

Andy Borter, Dash Home Loans
Not sure if you qualify? Contact us today to talk with one of our friendly Mortgage Coaches.

Work With Dash To Secure an ARM Loan in Florida

Getting a home loan in Florida is normally like listening to nails on a chalkboard — downright horrible. But when you work with Dash Home Loans, Florida’s friendliest and most efficient mortgage lender, securing an ARM is quick and easy. Sounds good, right?
At Dash, we’ve streamlined the lending process by firing inefficient loan processors and nixing superfluous paperwork. We also set ourselves apart from big banks and credit unions by offering five-star customer service. Don’t believe us? Check out our reviews.

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Securing a mortgage for your dream house can be super stressful. But it doesn’t have to be. Contact us today to learn about how painless our Florida home financing process is.  

 

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Frequently Asked Questions

Florida Adjustable-Rate Mortgage FAQs

Why are adjustable-rate mortgage (ARM) interest rates lower?

With an ARM, borrowers receive a “teaser” rate. However, they only benefit from this lower rate for a set period of time before the APR adjusts.  

Is an adjustable-rate mortgage a bad idea?

An ARM isn’t for everyone. However, it can be a great option for homeowners who hope to sell in the near future, expect a salary increase, or want to invest elsewhere.  

Do I qualify for an adjustable-rate mortgage (ARM)?

Generally, adjustable-rate mortgages are easier to qualify for than conventional, fixed-rate loans. Even borrowers with less-than-perfect credit — sometimes as low as 500 — can secure an ARM. 

Can I convert my ARM to a fixed-rate mortgage?

Depending on your lender, you may be able to refinance to a fixed-rate mortgage later down the road. This rate-and-term refinance would afford a stable interest rate and predictable monthly mortgage payments.