5/1 Adjustable Rate Mortgage

Mortgage Products

Fixed

ARM

Reverse

5 Years Fixed Remaining Term Adjusts Annually

Staying in the same home for 30 years may not be in your plans -- which is one reason to consider an adjustable-rate mortgage (ARM). An ARM generally offers a lower initial interest rate than a fixed-rate mortgage. With lower monthly payments in the initial years of your mortgage, you may qualify for a larger mortgage amount if you choose.

Fannie Mae offers a full range of fixed-period adjustable-rate mortgage products to fit your needs. Fixed-period adjustable-rate mortgages have an initial fixed-rate period, after which the rate may adjust either upwards or downwards annually, based on the cap structure and the index chosen.

If one or more of these situations describes you, an ARM might be a good fit:

You plan to stay in your home for a relatively short period of time
You want lower initial monthly payments and can handle potential payment increases in the future
You want to qualify for a larger mortgage amount, and you expect your income to go up over time

Key Features

You can select an ARM with a fixed-rate period of up to 10 years. The interest rate and your monthly payment stay the same during the fixed-rate period.
After that, the interest rate adjusts (usually annually) based on a specific financial index -- for example, one frequently used index is tied to the price of U.S. Treasury bills or securities.
In addition to the index, an additional percentage, known as a "margin" may be added to the index value to determine your interest rate at the time of adjustment.
The rate moves up or down, depending on how interest rates have moved since you took out your loan. This means that when interest rates go up, your monthly mortgage payments may go up as well. On the other hand, when interest rates go down, your monthly mortgage payments may also go down. ARMs typically have an interest rate cap (or maximum) on the periodic adjustments and for the life of the loan, so you know that your monthly payment cannot ever increase above a certain amount.

An adjustable rate is an option that can be used in conjunction with many other Fannie Mae mortgage products, such as Flexible 100^TM and Flexible 97^®, InterestFirst^TM, and Construction-to-Permanent mortgages.

Consumer Benefits

Interest-savings in the short-run compared to comparable fixed-rate loans
Terms and features to suit almost any borrowers' needs
Qualify for higher loan amounts with lower interest rates than comparable fixed-rate loans

2006 Conforming Loan Limits

Number of
Units Maximum original
principal balance Alaska, Guam, Hawaii,
and U.S. Virgin Islands only

1 $417,000 $625,500

2 $533,850 $800,775

3 $645,300 $967,950

4 $801,950 $1,202,925

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