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Adjustable-Rate Mortgages Overview

More lenders and borrowers are seeking out the advantages of adjustable-rate mortgages. In many market conditions, ARM rates are often lower than fixed-rate mortgages, and for certain borrowers, ARM advantages more closely meet their needs.

ARMs are best suited for borrowers who:

  • Understand that their rate may increase after the initial period.
  • Don't anticipate holding on to the property for the full term of the mortgage.
  • Expect their income to increase in the next couple of years.
  • Want the benefit of a lower initial rate and monthly payment.

With dozens of Freddie Mac ARM products, you can increase your origination potential by offering a dynamic and flexible ARM product.   With 1-year, 3-year, 5-year, 3/1, 5/1, 7/1 and 10/1 ARMs, expanding into many varieties of specialty mortgage products, including Home Possible® Mortgages, our ARM offerings leverage more home financing flexibility. Use ARMs for single-family homes, condominiums, second homes, manufactured homes, and for 1- to 4-unit primary residences or investment properties.

For super conforming adjustable-rate mortgages, see our detailed requirements in Guide Chapter 4603 of the Single/Family Seller/Service Guide (Guide).

Product Features

Property Type
  • 1- to 4-unit primary residences, including condos, PUDs and manufactured homes.
  • Second homes
  • 1- to 4-unit investment properties
Transaction Type
  • Purchase
  • No cash-out refinance
  • Cash-out refinance
Maximum LTV Ratios (without secondary financing)
Down Payment or Closing Costs
  • Secondary financing
  • Shared equity plans
  • Temporary subsidy buydowns
  • Loan Product Advisor®
  • Non-Loan Product Advisor
  • Loan Prospector Caution Mortgages and Non Loan Product Advisor mortgages must be manually underwritten per Guide Chapters 5100 through 5500.
  • Minimum Indicator Score of 620 unless otherwise specified in the Guide (Loan Product Advisor A-minus mortgages are exempt).
  • Maximum debt-to-income ratio of 45 percent for manually underwritten mortgages.
  • All mortgages must meet the risk class and/or minimum Indicator Score requirements in Guide Exhibit 25
  • Originate with most Freddie Mac mortgage products, including Home Possible Mortgages (5/1, 7/1 and 10/1 ARMs), Financed Permanent Buydown Mortgage and more.
  • Reference Guide Section 4401.8 for more information.
Execution Options
  • WAC ARM Cash
  • WAC ARM Guarantor
Credit Fees in Price
  • An ARM postsettlement credit fee in price applies, in addition to other fees that may apply based on the individual characteristics of the mortgage. See Guide Exhibit 19 for details on applicable fees.
Special Delivery Requirements
  • Refer to Guide Section 6302.7(b) for special delivery instructions for ARMs.

Lender Benefits

Adjustable-rate mortgages help you:

  • Offer an alternative to conventional fixed-rate mortgages, and can be combined with many options to increase your origination volume in any market condition.
  • Provide your borrowers with a greater level of individual flexibility when cross-marketing an ARM with many other Freddie Mac specialty mortgage products.

Benefits for Your Borrowers

Adjustable-rate mortgages help your borrowers:

  • Maximize their home buying power when interest rates are lower than typical fixed-rate mortgages.
  • Obtain flexible home financing that matches individual needs, particularly borrowers who frequently relocate, or intend to move up before the end of the fixed-rate term.
  • Choose from a variety of home financing options, for a variety of property types, to meet their individual financial circumstances.

Training Opportunities

Visit The Learning Center for live and recorded web conferences, access to classroom-style workshops and self-study tools – all designed to help you stay competitive, serve more borrowers and make it easier to do business with us.

Related Products

ARM Adjustment Solutions

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