4 min read
5/1 – 7/1 – 10/1—What do the Numbers Mean for Adjustable Rate Mortgages?
For physicians looking for the best rates, an adjustable rate mortgage (ARM) may be the right choice. However, even if you think an ARM may be a sensible option for your financial needs, you need to know more. The adjustable rate mortgage can offer doctors the opportunity to build equity quickly and are ideal for homeowners who know they won’t be in their home long term and are ready to take the risks (and sometimes benefits) in changing market conditions. However, there are still options to consider within the ARM designation. Three different terms—5/1, 7/1, and 10/1—are most common in the mortgage industry. The higher number represents the length of the fixed-rate period, and the “1” is frequency (once a year) that the rate is adjusted after that period of time. Today’s ARMs are actually a hybrid of traditional adjustable rate loans, with a fixed interest rate for a period of time (the 5-7-10 designation you see above), followed by a traditional adjustable mortgage each year thereafter. Rates are usually lowest for the shortest term, and then gradually raise with the fixed term length.
There are considerations when investigating an adjustable rate mortgage.
- How long do you think you may remain in your home?
- Do you foresee stable income for while?
- Do you expect any major life events in the next few years?
- Are you buying a “starter” home or condo with plans to upgrade?
- Is there a large difference between fixed and adjustable rates?
Let’s look at the three common adjustable rate mortgage terms offered by lenders today.
Adjustable Rate Mortgage Options:
5/1 ARM Mortgage. With a fixed rate for 5 years, a 5/1 ARM is a popular choice. You may be able to predict the next five years—in terms of job security, general income, debt load—and this is a good place to start. If you are not expecting major changes in the next few years and think you might sell your home and move into an upgraded (larger) property, this would be a short commitment. By the time your fixed period ends, you are ready to sell your home and purchase a new home (and new loan).
7/1 ARM Mortgage. This middle-of-the-road term length is just another consideration when looking at an adjustable rate mortgage (although not offered by as many lenders as the 5 and 10-year terms). Just like the questions you have regarding the 5-year fixed term, you really need to think about your future plans. There may be a difference in rates between each of the terms, and the 7-year term may be close enough that it is worth locking in that initial rate for a few additional years.
10/1 ARM Mortgage. If you plan on remaining in your home and medical practice during a time when interest rates are good, a 10/1 term may be the perfect choice for you. This type of mortgage is ideal when you can’t get the rate you want for a fixed mortgage and are willing to revisit your mortgage in 10 years.
In our series, we have introduced you to a list of lenders who cater to medical professionals, offering outstanding rates, exclusive terms, reductions in fees, and even relaxed requirements. Even though some lenders do not offer an explicit physician mortgage, many still recognize the value of doctors as banking customers. Quicken Loans is one of those lenders.
Initially formed as Rock Financial in 1985, the company went public in 1998. Intuit, Inc. purchased the company in 1999, renaming it Quicken Loans. Founder Dan Gilbert organized a group of private investors and purchased it back, shifting the mortgage provider to an online lender. Quicken’s centralized approach to lending was a major shift to a regional industry, and it employed experts in various areas throughout the country. Many changes in banking and Quicken’s approach to mortgage lending have led it to become THE leader in the mortgage lending industry. It has since expanded into Canada. Quicken’s online presence makes it attractive to potential buyers, who have the freedom to research, apply for, and gain approval on a loan without leaving their homes.
Quicken Loans Mortgages
Even though they don’t have a dedicated physician mortgage program, Quicken Loans offers a large variety of mortgage options, including:
Minimum Credit Score
Loan Amounts For Residents & Fellows
Loan Amounts For Practicing Physicians
Quicken Loans (and its online subsidiary, Rocket Mortgage) has been an active philanthropic company. Since 2010, the company has donated over $150 million to local communities and its employees have donated over half a million hours in volunteer work. As a primary mortgage provider, Quicken Loans has earned J.D. Powers’ designation as the highest ranking in customer satisfaction for the past 10 years. Visit Quicken Loans to discover if this online lender is the right fit for your needs. To review our entire list of mortgage lenders and to learn more about the physician mortgage process, visit our site.