Question 1

What's the typical rate difference between ARMs and fixed loans in Commerce?

Accepted Answer

ARMs usually start 0.5-1.0% below comparable fixed rates. Rates vary by borrower profile and market conditions, but that spread translates to $200-400 monthly savings on median-priced homes.

Question 2

How do ARM rate caps work?

Accepted Answer

Most ARMs have 2/2/5 caps: 2% max increase at first adjustment, 2% max per adjustment after, 5% max lifetime increase. A 6% start rate can't exceed 11% over the loan life.

Question 3

Can I refinance an ARM before it adjusts?

Accepted Answer

Yes, most borrowers refinance during the fixed period to lock current rates. No prepayment penalties exist on most conforming ARMs, making this a common exit strategy.

Question 4

Do ARMs work for Commerce investment properties?

Accepted Answer

ARMs suit rental properties if you plan to sell or refinance within 7 years. Lower payments boost cash flow initially, and investors often exit before adjustment anyway.

Question 5

What happens if I can't refinance when my ARM adjusts?

Accepted Answer

Your rate adjusts based on the index plus margin, capped per your loan terms. Plan for worst-case payment before closing—never assume you'll refinance out.

Adjustable Rate Mortgages in Commerce: Lower Rates for Strategic Buyers