Adjustable-Rate Mortgages Overview
More lenders and borrowers are seeking out the advantages of adjustable-rate mortgages. In many market conditions, ARM rates are in many cases lower than fixed-rate mortgages, and for certain borrowers, ARM advantages more closely meet their needs. It's critical for you to offer a strong ARM product line – your borrowers want them, and your competition is already offering them.
ARMs are best suited for borrowers who:
- Understand that their rate may increase after the initial period.
- Don't anticipate holding on to the property for the full term of the mortgage.
- Expect their income to increase in the next couple of years.
- Want the benefit of a lower initial rate and monthly payment.
With dozens of Freddie Mac ARM products, you can increase your origination potential by offering a dynamic and flexible ARM product. Starting with 3/1, 5/1, 7/1 and 10/1 ARMs, a line of LIBOR-indexed ARMs with 6-month adjustment periods and expanding into many varieties of specialty mortgage products, including Initial Interest and Home Possible Mortgages, our ARM offerings
leverage more home financing flexibility – and for many property types. Use many ARMs for single-family homes, condominiums, second homes, manufactured homes, and for 1- to 4-unit primary residences or investment properties.
ARMs are a match for many borrowers, as long as they clearly understand that their rate can significantly increase after the initial fixed-rate period.
Product Features
| Feature |
Requirements |
Property Type |
- 1- to 4-unit primary residences, including condos, PUDs and manufactured homes.
- Second homes
- 1- to 4-unit investment properties
|
Transaction Type |
- Purchase
- No cash-out refinance
- Cash-out refinance
- Streamlined refinance
|
Maximum LTV Ratios (without secondary financing) |
- Maximum LTV ratios must comply with Single-Family Seller/Servicer Guide (Guide) Section 23.4.
|
Down Payment or Closing Costs |
- Secondary financing
- Shared equity plans
- Temporary subsidy buydowns
|
Eligibility/Underwriting |
- Loan Prospector®
- Non-Loan Prospector
- Loan Prospector Caution Mortgages and Non Loan Prospector mortgages must be manually underwritten per Guide Chapter 37.
- Originate with most Freddie Mac mortgage products, including Home Possible Mortgages (5/1, 7/1 and 10/1 ARMs), a full line of Initial Interest ARMs, the Alternative Stated Income Mortgage, the Financed Permanent Buydown Mortgage and more.
- Reference Guide Section 30.16 for more information.
|
Execution Options |
- WAC ARM Cash
- WAC ARM Guarantor
|
Delivery Fees |
- An ARM postsettlement delivery fee applies, in addition to other fees that may apply based on the individual characteristics of the mortgage. See Guide Exhibit 19 [PDF 183K] for details on applicable fees.
|
Special Delivery Requirements |
- You must deliver all mortgage data required by Form 13SF including Mandatory SCC codes, Indicator Score, Index Source Code, Index Lookback Days, First Rate Adjustment Minimum Rate and First Rate Adjustment Maximum Rate.
|
Lender Benefits
Adjustable-rate mortgages help you:
- Offer an alternative to conventional fixed-rate mortgages, and can be combined with many options to increase your origination volume in any market condition.
- Leverage cross-promotional opportunities. Use ARMs to offer borrowers cash flow savings—to invest in your other financial products—and financial savings if they plan to move before the adjustment period begins.
- Provide your borrowers with a greater level of individual flexibility with Initial Interest ARMs, or when cross-marketing an ARM with many other Freddie Mac specialty mortgage products.
Benefits for Your Borrowers
Adjustable-rate mortgages help your borrowers:
- Maximize their home buying power when interest rates are lower than typical fixed-rate mortgages.
- Obtain flexible home financing that matches individual needs, particularly borrowers who frequently relocate, or intend to move up before the end of the fixed-rate term.
- Choose from a variety of home financing options, for a variety of property types, to meet their individual financial circumstances.
For More Information
Training Opportunities
Visit The Learning Center for live and recorded web conferences, access to classroom-style workshops and self-study tools – all designed to help you stay competitive, serve more borrowers and make it easier to do business with us.
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