Share This Page!

Adjustable Rate Mortgage

What is an adjustable rate mortgage (ARM)

A loan that has a fluctuating interest rate and monthly payment

ARMs start off with a fixed interest rate and monthly payment, but then adjust to reflect changes in the market interest rate. A 1-year ARM, for example, will have a fixed interest rate for one year and then will adjust on the second year, and continue to adjust annually over the life of the loan. You can also find ARMs that adjust semi-annually and monthly.

You get a low starting interest rate in exchange for taking a risk that rates may rise in the future. There is also a cap on how much the interest rate can go up or down. Figure out if you can afford the highest payment at the maximum interest rate before you choose this type of mortgage. Other common ARMs are: 3/1, 5/1, 7/1 and 10/1.

Related Posts Plugin for WordPress, Blogger...