3/1 Adjustable Rate Mortgage

A 3/1 ARM (adjustable rate mortgage) has a fixed interest rate and monthly payment for the first 36 months of the loan. For the remaining 27 years, the payment amount and interest rate will adjust annually. The interest rate for this type of loan product is determined using an economic index (examples are the US Treasury, LIBOR, and COFI), and a margin (which is fixed for the life of the loan). A 3/1 ARM carries a similar premium (interest rate) as a 5/1 ARM. Consolidating your debt into a 3/1 ARM can result in huge saving to you because the premiums are typically significantly lower than credit cards or other high interest accounts.