PenFed Mortgages

Experienced Home Buyer

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THE DIFFERENCE BETWEEN ARM AND FIXED RATE MORTGAGES

When choosing between an adjustable rate mortgage (ARM) or fixed rate, it’s important to understand how they work and what your needs are.  Meet Matt and The Dawsons and see what choice they made.

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ADJUSTABLE-RATE MORTGAGE

With an adjustable-rate mortgage, the interest rate may change in relation to an index and payments may go up or down accordingly.


      About 5/5 ARM      

Matt relocates frequently for work.

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Graph showing arm interest rates over time
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Matt enjoys the lower initial interest rate.                                 

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FIXED-RATE MORTGAGE

With a fixed-rate mortgage, the interest rate and the monthly payment of principal and interest stay the same during the life of the loan.


      About 30-Year      

The Dawsons love the area where they live and found their dream home.

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with Fixed Rate mortgages, monthly payments never change
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The Dawsons prefer the predictability of long-term, stable payments.

How long am I going to stay in my home?  

If you don’t plan to stay in your home for a long time you may want to consider an ARM, which typically has a lower initial interest rate than a fixed rate and you may save money in interest charges. The money you save could be put toward retirement, paying off debt, building an emergency fund, and more.

What can I afford?

  Knowing how much you can afford to pay month to month in mortgage payments will also help you decide between an ARM or fixed-rate mortgage. 

 

 

Looking for an investment property?

Investment property can be used to provide income or supplement it. Whether you're considering buying a property to lease out, renovate and lease or simply to hold for a few years, a  balloon mortgages might be just the right option for you.

10-YEAR
BALLOON

Investment Property Mortgage

Rates as low as1 APR as low as1 Principal and Interest**
$

1Rates are based on evaluation of credit history, loan-to-value, and loan term, so your rate may differ. Rates subject to change at any time.

**This payment example assumes a loan with points, a loan amount of $ and an estimated property value of $143,000. Payments shown do not include taxes or insurance escrows; actual payments may be greater. Note: this is a 10-year fixed rate mortgage amortized over 30 years with the balance due and payable in full at the time of maturity. Loan matures in 10 years; you may apply to refinance the balloon payment ($ in this example) at maturity.

Estimate Your Cost

Mortgage Calculators

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Down payments less than 20% of property value may require Private Mortgage Insurance (PMI).
*PenFed Adjustable Rate Mortgages (ARMs) are calculated using 30 year Loan Terms
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$1538.00
Start Now

Apply before becoming a member.

After your application, we’ll help you:

1. Discover you’re eligible to become a PenFed member

2. Open a Savings/Share Account and deposit at least $5

The application of additional loan level pricing adjustments will be determined by various loan attributes such as Loan-To-Value (LTV) ratio, credit score, transaction type, property type, product type, occupancy, and subordinate financing.
The calculator above is for educational purposes only. Your actual rate, payment, and costs could be higher.

$
Loan to Values (LTV) of 80% and above may require Private Mortgage Insurance (PMI).
*PenFed Adjustable Rate Mortgages (ARMs) are calculated using 30 year Loan Terms
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$1538.00
Start Now

Apply before becoming a member.

After your application, we’ll help you:

1. Discover you’re eligible to become a PenFed member

2. Open a Savings/Share Account and deposit at least $5

The application of additional loan level pricing adjustments will be determined by various loan attributes such as Loan-To-Value (LTV) ratio, credit score, transaction type, property type, product type, occupancy, and subordinate financing. The calculator above is for educational purposes only. Your actual rate, payment, and costs could be higher. Get an official Loan Estimate before choosing a loan.

When you're buying a home, mortgage lenders don't look just at your income, assets, and the down payment you have. They look at all of your liabilities and obligations as well, including auto loans, credit card debt, child support, potential property taxes and insurance, and your overall credit rating. Use our home affordability calculator to determine how much of a mortgage you may be able to obtain.

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RATIO SLIDER
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Start Application

Apply before becoming a member.

After your application, we’ll help you:

1. Discover you’re eligible to become a PenFed member

2. Open a Savings/Share Account and deposit at least $5

The calculator above is for educational purposes only. Your actual rate, payment, and costs could be higher. Get an official Loan Estimate before choosing a loan.

ARM vs Fixed Rate Mortgages: Which One Should You Choose?

Posted October 2016
by PenFed Team

With mortgage interest rates at an all-time low you’re probably thinking about finally taking the big leap and becoming a homeowner or refinancing your existing home to a lower interest rate. However, the age-old question looms in front of you…which mortgage should I choose, an ARM or a fixed-rate mortgage?

The answer: it depends on your needs. While there are pros and cons to both mortgages, the real question is not which mortgage is better, but which mortgage will suit my needs.

Let’s take a look at both an ARM and fixed-rate mortgage and then you can decide which option is going to afford you your dream home or that tantalizing interest rate that will have you running to refinance your home.

Adjustable-Rate Mortgages

Adjustable-rate mortgages or ARMs have interest rates that adjust over a period of time. ARMs have had a notoriously bad reputation because of the mortgage meltdown and subsequent recession.

While this reputation was justified in the past, most of those exotic ARMs no longer exist. Today, financial institutions offer hybrid ARMs—like PenFed’s 5/5 ARM, which has a fixed-rate for five years and then the rate adjusts once every five years. This is a unique mortgage product as most ARMs adjust annually after the initial fixed terms.

The thought of an adjustable interest rate probably has you fearing skyrocketing monthly mortgage payments. Fear not, all ARMs have caps—a limit on the amount the interest rate can adjust—and ceilings—the highest the interest rate is allowed to become during the life of the loan. Using PenFed’s 5/5 ARM as an example, the initial interest rate will change every five years by no more than two percentage points up or down (the cap). This rate will never exceed five percentage points above the initial rate (the ceiling).

Fixed-Rate Mortgages

A fixed-rate mortgage provides a reliable and fixed monthly payment for the life of the loan. Because your total mortgage payment remains stable from month to month, homeowners can easily budget their monthly expenses.

Financial institutions offer various fixed-rate mortgages including the more common fixed-rate mortgages: 15, 20, and 30-year.  Out of the three the 30-year fixed is the most popular mortgage because it usually offers the lowest monthly payment. However, the lower monthly payment comes at a cost of paying more in interest over the life of the loan.

Some Considerations

So, now that you know a little more about ARMs and fixed-rate mortgages here are a few things you should consider when making a decision about which mortgage will best suit your needs:

  • How long do you plan to stay in your home? If you don’t plan to stay in your home for the long haul, you may want to consider an ARM, which has a lower interest rate than the 30-year fixed and you save big money in interest charges. If you move or refinance within five years before the interest rate adjusts you can avoid a payment hike. Conversely, if you’ve found or are already in the home of your dreams, a fixed-rate mortgage makes more sense and will provide you stable payments for years to come.
  • What can you afford? Knowing how much you can afford to pay month to month in mortgage payments will also help you decide between an ARM or fixed-rate mortgage. If you’re working within a tight budget, the ARM may be a more attractive option since the payments will be lower than a 30-year fixed. But, unless you anticipate a raise or another source of added income, ask yourself if you’ll be able to afford your mortgage payment when the ARM’s interest rate increases. If not, don’t take the risk. Go with the fixed-rate mortgage and get stable monthly payments.

The Takeaway: When it’s all said and done, the goal is to get you into the home of your dreams or refinance your existing home without breaking your pockets. Both the ARM and fixed-rate mortgage are products that will help you reach your goal. However, the path you take to get to your goal depends on which mortgage will suit your needs.

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