One-Year Adjustable-Rate Mortgage

This adjustable-rate mortgage (ARM) offers a low initial interest rate 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 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.)

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