Adjustable-Rate Mortgages

We will finance properties that are:

• Located in the state of Pennsylvania
• Recorded with PSECU listed as first lien holder. The property secures your mortgage loan.
• Titled after purchase in the name(s) of individual(s), not a trust
• Owner-occupied homes, vacation homes, or residential non-owner occupied properties with one, two, three, or four units. Some exceptions apply.
• Condominiums or residences within a Planned Unit Development (PUD) that meet certain criteria. Please contact our mortgage consultants for more information.

We will not finance properties that are:

• Single-wide manufactured homes
• Timeshares
• Not in acceptable marketable condition
• Non-owner-occupied condo or manufactured homes
• Located outside Pennsylvania

You may request to waive an escrow account if the loan-to-value (LTV) is 80% or lower, taxes and insurance have been paid timely in the past, and you have the ability to pay them on your own.

An adjustable-rate mortgage (ARM) differs from a fixed-rate mortgage in many ways. Most importantly, with a fixed-rate mortgage, the interest rate stays the same during the life of the loan. With an ARM, the interest rate changes periodically, usually in relation to an index, and payments may go up or down accordingly.

The initial rate and payment amount on an ARM will remain in effect for a limited period—ranging from just 1 month to 5 years or more. For some ARMs, the initial rate and payment can vary greatly from the rates and payments later in the loan term. Even if interest rates are stable, your rates and payments could change a lot. If lenders or brokers quote the initial rate and payment on a loan, ask them for the annual percentage rate (APR). If the APR is significantly higher than the initial rate, then it is likely that your rate and payments will be a lot higher when the loan adjusts, even if general interest rates remain the same.

With most ARMs, the interest rate and monthly payment change quarterly, semi-annually, yearly, 3 years, 5 years, 7 years or 10 years. The period between rate changes is called the adjustment period. For example, a loan with an adjustment period of 1 year is called a 1-year ARM, and the interest rate and payment can change once in a 12-month period. A loan with a 3-year adjustment period is called a 3-year ARM. You will carry the initial interest rate for the first three years before the first-rate adjustment may take place.

Lenders generally charge lower initial interest rates for ARMs than for fixed-rate mortgages. At first, this makes the ARM easier on your pocketbook than a fixed-rate mortgage for the same loan amount. Moreover, your ARM could be less expensive over a long period than a fixed-rate mortgage. For example, if interest rates remain steady or move lower. An ARM is a great option if your goal is to get the lowest possible mortgage interest rate starting out.

Against these advantages, you have to weigh the risk that an increase in interest rates would lead to higher monthly payments in the future. It’s a trade-off—you get a lower initial rate with an ARM in exchange for assuming more risk over the long run.

Here are some questions you need to consider:

• Is my income enough—or likely to rise enough—to cover higher mortgage payments if interest rates go up?
• Will I be taking on other sizable debts, such as a loan for a car or school tuition, in the near future?
• How long do I plan to own this home? (If you plan to sell soon, rising interest rates may not pose the problem they do if you plan to own the house for a long time.)
• Do I plan to make any additional payments or pay the loan off early?

The reality is that for many homebuyers who want the lower payment of an adjustable-rate loan, the added risk is often more than they can afford to take because they don't have a big income or vast savings. So, for those borrowers who have tight budgets and little savings to assist with making higher payments if rate increases, they would be better off doing a mortgage product that offers less financial risk or purchasing a less expensive home.