Adjustable Rate Mortgage
An adjustable-rate mortgage (ARM) is a loan program made up of two parts: a fixed rate period, and a series of rate adjustment periods. After the fixed period ends, the interest rates change as the market conditions change.
- 3/1 ARM
- 5/1 ARM
- 7/1 ARM
- 10/1 ARM
The first number indicates the length of the fixed-rate period. The second number indicates how frequently the interest rate will adjust after the fixed period ends.
Why are people interested in the Adjustable Rate Mortgage?
People are typically able to benefit from an ARM if they:
- seek more financial flexibility in the beginning of the loan
- don’t plan on living in one place for a long time
- don’t want to deal with a refinance if the market improves
There are plenty of benefits to the ARM:
- a lower fixed interest rate than the fixed-rate mortgage offers
- lower initial monthly payments
- limits on how much your payments can increase
- down payments exceeding 20% to negate the PMI
- ability to start with as little as 3% down
That’s a lot to consider. At the end of the day, what type of loan you seek depends on your financial situation and goals. This can be best determined by speaking with a professional.