Buy or refi with a 5-year ARM for just 2.75%

House keys on top of mortgage contract

BankFinancial is offering one of autumn's best deals on 5-year adjustable-rate mortgages.

It's charging borrowers an introductory rate of just 2.75% with no points and an application fee of $295 (additional fees and closing costs vary). It comes with a 60-day rate lock.

That rate from BankFinancial is nearly two-fifths of a percentage point less than the average cost of a 5-year ARM — 3.14%, according to our most recent survey of major lenders.

Unfortunately, this deal is only available in the Chicago area, Lake and Porter counties in Indiana, and Racine, Kenosha and Walworth counties in Wisconsin.

But it provides a great blueprint to follow. Find a similar deal from a lender in your area, and you know you've found a winner.

You can get started by searching the best mortgage rates from scores of lenders in your area.

The principal and interest payments for the first five years of this loan would be just $408 per month for every $100,000 borrowed under the introductory rate.

You can use our adjustable-rate mortgage calculator to determine the monthly payment for the exact amount you want to borrow with this or any home loan.

It will also provide a month-by-month amortization schedule that shows how much you've reduced your debt, how much you still owe if you want to pay off the loan and where your maximum monthly payment could end up.

The 10 biggest mortgage mistakes

A mortgage is the biggest debt most of us will ever carry, and a home is the most expensive purchase we will ever make. That's why it's so important to avoid pitfalls like letting the bank decide how much house you can afford or failing to check your credit before you try to buy. These mistakes can cause you to pay more than you need to, prevent your loan from closing or even lead to foreclosure.

There's a chance that you'll find lenders offering ARMs with lower rates, but it's important to check their interest rate caps before you sign up.

Rates on some of these loans can increase as much as five percentage points when they reset the first time.

The interest rate caps for this ARM from BankFinancial won't do that. They are 2/2/6, which means the interest rate can't go up more than:

Although mortgage rates have defied all predications and declined so far this year, it's a pretty safe bet that rates will move higher, perhaps substantially higher, by the time this loan first adjusts in five years.

That means your rate could hit 4.75% when it first adjusts after five years (not bad), 6.75% at the second adjustment and max out at 8.875%.

Like most adjustable-rate loans, this option is best for borrowers planning to sell, or at least refinance, before the first adjustment, depending on where rates are at that time. Yet this loan from BankFinancial might allow you to wait until the second adjustment due to the low intro rate and modest rate cap adjustments.

But it's important to make sure you can still afford the monthly payments if you're stuck with this loan for more than five years.

At 8.75%, your monthly principal and interest payments for this loan would jump up to $787 per month for every $100,000 borrowed, or nearly $1,575 on a $200,000 loan.

And don't forget to factor insurance, property taxes and association fees into the payment, which can really bump up your monthly check to the bank.

BankFinancial is based out of Burr Ridge, Illinois, and enjoys an A+ from the Better Business Bureau. To qualify for this loan, you'll need to:

Keep in mind that you don't want to drain your savings and take on mortgage payments that you are struggling to make every month. Here's how to find the price range that's right for you.