Getting a mortgage to purchase a home can be a confusing process, especially when it comes to understanding the different types of mortgages available. One type that you may have heard of is the 15th ARM mortgage. But what exactly is a 15th ARM and how does it work? This article will provide a simple explanation of 15th ARM mortgages to help you understand this unique loan product.
What Does 15th ARM Mean?
ARM stands for adjustable-rate mortgage. This means that the interest rate is not fixed for the entire life of the loan, but can change or “adjust” periodically based on market conditions
The “15th” part refers to when the first adjustment occurs. For a 15th ARM, the interest rate remains fixed or “locked in” for the first 15 years of the 30-year mortgage. After 15 years, it can then adjust annually based on an index rate.
So in short, a 15th ARM mortgage has:
- A fixed interest rate for the first 15 years
- Rate adjustments annually starting in year 16 until the loan matures in year 30
This differs from a more common 5/1 ARM, which has a fixed rate for 5 years before adjusting annually. The 15-year fixed period offers more rate stability before any changes occur.
How Does a 15th ARM Mortgage Work?
Here is an overview of how a 15th adjustable-rate mortgage works
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You take out a 30-year mortgage with a fixed interest rate for the first 15 years This allows you to lock in a low rate for a longer period,
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At the end of year 15, the interest rate can then adjust once per year based on an index plus a margin. Common indices are the LIBOR or Treasury securities indexes.
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There are rate caps that limit how much the interest rate can change each year and over the life of the loan. For example, a common cap structure is a 2/2/5 cap:
- The rate can adjust up to 2% at the first adjustment
- 2% annually after that
- But no more than 5% over the life of the loan
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At each adjustment, your monthly payment will change to reflect the new rate. But the loan term remains 30 years in total.
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You have the option to refinance once the rate becomes adjustable to lock in a new fixed rate if rates are favorable at that time.
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This loan works well if you plan to move or refinance within the first 15 years to take advantage of the fixed rate period. The lower initial rate also makes payments more affordable early on.
Overall, the unique 15-year fixed term allows you to secure a low rate for a longer timeframe before any adjustments occur. This gives you stability and predictability in the early years of your mortgage.
Pros and Cons of a 15th ARM Mortgage
Like any mortgage product, there are both advantages and disadvantages to weigh with a 15th adjustable-rate mortgage:
Pros:
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Lower interest rate than a 30-year fixed rate mortgage for the first 15 years, which translates into lower monthly payments
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Pay less interest early in the loan, allowing you to pay down the principal faster
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Interest rate remains fixed for a longer period compared to a 5/1 or 7/1 ARM
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Opportunity to refinance once the rate becomes adjustable to a potentially better rate
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Interest rate may trend downward over time after adjustments, lowering payments
Cons:
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Uncertainty and risk that comes with an adjustable-rate when fixed period ends
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Potential for much higher payments if rates rise significantly after year 15
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Usually requires refinancing to avoid rate spikes if rates are high at first adjustment
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Not ideal if keeping the mortgage long-term since rate will fluctuate
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Closing costs to refinance once fixed period ends
As you can see, the desirability of a 15th ARM depends on your unique situation and financial plans. It offers low rates upfront but does carry some long-term uncertainty.
What Credit Score Do You Need for a 15th ARM?
To qualify for a 15th ARM mortgage, most lenders will look for a minimum credit score around 620 or higher. However, you’ll likely get the best rates with a score of 740 or above.
The higher your credit score, the lower the interest rate lenders are likely to offer on a 15th ARM since you represent less risk as a borrower. So aim for the highest credit score possible when applying.
Lenders may also require larger down payments for borrowers with scores below 740 seeking an ARM loan.
Is a 15th ARM Mortgage Right for Me?
If you’re considering a 15th adjustable-rate mortgage, the most important question is whether it aligns with your plans and financial situation.
This loan can make the most sense for certain borrowers, such as:
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Homeowners who plan to move or refinance within the 15 year fixed rate period
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Borrowers who want payment savings now and can manage higher payments later if needed
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Those who anticipate interest rates declining over the life of the loan
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Homebuyers who qualify for better rates with an ARM than a fixed mortgage
However, the risks may outweigh the benefits for borrowers who:
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Want rate and payment stability beyond 15 years
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Have limited income flexibility to handle maximum payment increases
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Prefer the certainty of fixed mortgage rates long-term
Carefully consider both the advantages and drawbacks when deciding if this type of loan is the right fit. Shop around and compare options to find the best rate and terms for your situation.
How to Get a 15th ARM Mortgage
If you decide a 15th adjustable-rate mortgage aligns well with your home financing plans, here is how to go about getting one:
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Check your credit score and report to ensure accuracy and identify any issues to address before applying.
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Get pre-approved by having a lender evaluate your income, assets, debts, and credit. This shows sellers you are a serious buyer.
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Compare mortgage rates and 15th ARM programs from multiple lenders to find the best deal. Online lenders, banks, credit unions, and mortgage brokers all may offer this loan product.
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Submit a full application with all required documents once you are under contract on a home. Allow 2-4 weeks for underwriting and approval.
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Be prepared to provide extra documentation to show you can afford higher payments later if your debt-to-income ratio is close to the limit.
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Lock in an interest rate with the lender once approved. Rates fluctuate daily so timing is important.
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Thoroughly review the mortgage terms, disclosures, and closing documents before signing to ensure you understand the loan details.
With some shopping around and preparation, you can secure a competitive 15th ARM loan to finance your home purchase while rates are low and stable. Just be sure to select a mortgage that aligns with your unique needs and financial capabilities down the road.
Alternatives to the 15th ARM Mortgage
If you want more long-term rate and payment stability, here are a few alternatives to consider rather than a 15th adjustable-rate mortgage:
30-Year Fixed-Rate Mortgage – This provides an interest rate locked in for the full 30-year term. Your payment remains the same each month.
20-Year Fixed-Rate Mortgage – Gives you a fixed rate and set payment for 20 years. This allows you to pay off your loan faster to save on interest.
10/1 ARM – Has a fixed rate for 10 years before annually adjusting for the remaining 20 years of the term. Provides more years of rate stability than a 15th ARM.
Home Equity Line of Credit – Functions like a credit card using your home equity as collateral. Gives you flexible access to funds at a variable interest rate.
FHA Loan – Government-backed mortgages that allow lower credit scores and down payments. Come with fixed or adjustable rates.
Be sure to compare the pros and cons of different mortgage products. While a 15th ARM may offer some advantages, you need to determine if it’s the optimal choice based on your financial situation and goals.
Key Takeaways on 15th ARM Mortgages
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A 15th ARM mortgage has a fixed rate for the first 15 years and then adjusts annually for the remaining loan term.
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The interest rate will be lower the first 15 years compared to a 30-year fixed rate mortgage taken out at the same time.
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Payments will remain stable and predictable for the first 15 years when the rate is locked in.
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After year 15, payments can fluctuate up or down each year depending on rate adjustments.
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There are rate caps that limit increases at each adjustment and over the life of the loan.
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This type of loan can make sense for some borrowers, but also carries some risk of higher long-term payments.
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Shop multiple lenders and compare options to find the best 15th ARM loan for your situation.
While adjustable-rate mortgages can seem complicated at first glance, the 15th ARM has some unique features that provide both low rates upfront and longer rate stability. Carefully weighing the pros and cons allows you to determine if this mortgage aligns with your home financing needs and future financial plans.
Is a 5/1 ARM a good idea?
A 5/1 ARM can work out in your favor, but only under the right conditions. There’s probably no reason to choose a 5-year ARM when FRMs are available at similar or lower rates. But when ARM rates are much lower than fixed rates, a 5/1 ARM starts to look a lot more attractive.
- Lower intro rates and payments. The advantage of a 5/1 ARM is that during the first years of the loan — when the upfront rate is fixed — you can get a much lower interest rate and lower payments
- Lower borrowing costs during the introductory period. If you plan to sell in less than five years, a 5/1 ARM could be a smart choice. In a five-year period, the savings from your lower rate could be enough to buy a new car or cover a year’s college tuition, for example
Keep in mind that the National Association of Realtors (NAR) pegs the average time owners keep their properties at about eight years. Younger buyers sell sooner, and older ones tend to stay longer.
The biggest disadvantage of an ARM is the risk of interest rate hikes. For example, it’s possible a 5/1 ARM with a 4.5% start rate could (worst case) increase as follows:
- Beginning of year six: 6.5%
- Starting year seven: 8.5%
- Years eight through 30: 9.5%
This doesn’t mean your ARM will increase; it means that it’s possible.
In addition, modern adjustable-rate mortgages come with interest rate caps that limit the amount your rate can increase at each adjustment and over the life of the loan. And lenders often qualify borrowers for ARMs based on the maximum possible rate to ensure the loan would remain affordable even if their rate were to increase.
How 5/1 ARM rates adjust
After the introductory fixed-rate period, ARM rates can readjust each year. Whether or not your ARM interest rate changes — and how much it moves — depends on which rate index it’s tied to.
Previously, most adjustable-rate mortgages were based on an index called the 1-Year LIBOR (London Interbank Offered Rate) or the Constant Maturity Treasury (CMT) securities index. But as of 2021, the majority of ARMs are based on the Secured Overnight Financing Rate (SOFR) index instead.
Avoiding the technicals, what you need to know is that SOFR is a measure of current interest rates in the overall lending market. Your ARM rate would likely be based on the SOFR overnight lending rate, plus a certain percentage. This is called your “margin.”
For example, say your current mortgage rate on a 5/1 ARM is 2.5%, but you are nearing the end of your 5-year fixed period. The current SOFR overnight financing rate is at 0.10 percent. The margin on your loan is 2.75% (this is fairly typical). If your rate were adjusting on this day, your new rate would rise from 2.5% to 2.85% (the index plus the margin).
But if the current SOFR rate were 1.5%, your new rate would rise from 2.5% to 4.25% — in one month. Your mortgage payment could rise by hundreds of dollars. That’s why it’s important to consider the “worse case scenario” when accepting an ARM loan.
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FAQ
Is 15 inch arm considered big?
Now, 15 inches might sound like a magic number, but remember, it looks different for everyone. Factors like height, weight, and overall body composition play a big role in how those 15 inches appear. For some, 15 inch arms might be the pinnacle of their fitness journey, while for others, it might be a stepping stone.
What is a 15 arm mortgage?
Sunward offers 15/15 adjustable rate mortgages (ARMs) that have the stability of just one rate change during the life of the loan. With our 15/15 ARM, you can lock in a low rate and rely on the same monthly principal and interest payment for 15 years. It may adjust only once during the term of the loan.
What is the meaning of 5 arm?
A 5/1 ARM loan provides an initial fixed-rate period of five years, after which the interest rate adjusts yearly depending on current market rates. ARM loans have rate caps, a ceiling for how high your interest rate can go once the introductory fixed-rate period ends.
What is a good arm size for a man?
A good arm size for a man is subjective and depends on individual goals and body composition, but generally, 15 inches or larger for a flexed bicep is considered well-developed. For competitive natural bodybuilders, sizes can reach 17 inches or more.
What is a 15 inch arm?
So “15 inch arms” are 15 inches (38.1 cm) around at the widest part of the bicep and tricep. Before getting into arm sizes, make sure you’ve measured your arm accurately. Arm size is measured using a flexible tape such as a tailor’s tape. First, raise one arm parallel to the floor and drape the end with the number “1” over the front of your bicep.
Are 15 inch arms a good size?
In Table 2, you can see that the average man has around 14½ inch arms. Therefore, 15 inch arms are slightly above average. For women, the average arm size is a little smaller at 13½ inches. And 15 inch arms would be well above average. To put this arm size data in perspective, it helps to look at it in terms of percentiles.
Do you have 15 in biceps?
Most people, for example, don’t have lean 15 inch arms. So if you do have 15 in biceps at a relatively low body fat level, then you’ve clearly achieved something that most gym-goers haven’t. Of course, many people want to exceed the 15 inch mark and get 15.5 in biceps or even a much bigger measurement.
Is 15 inch arms a good bicep size?
Arm Size Percentiles For Men & Women (Flexed) Now you can see that a man with 15 inch arms is in the 55 th percentile. In other words, your biceps are bigger than average but smaller than 9 out of 20 men. And for women, 15 inch arms puts you in the 75 th percentile.
Do 15 in arms look big at 5’10?
While 15″ arms are unlikely to look huge at the height of 5’10”, they can definitely look muscular (and noticeably so) if you also have good arm definition. Of course, if you’re over 20% body fat, then 15 in arms are unlikely to look impressive at 5’10” because you won’t be able to see much separation between the biceps and triceps when you flex.
Are 15 inch biceps good or bad?
Whether or not 15 inch biceps are good or bad, big or small, depends on your point of view. Most people, for example, don’t have lean 15 inch arms. So if you do have 15 in biceps at a relatively low body fat level, then you’ve clearly achieved something that most gym-goers haven’t.