An Adjustable Rate Mortgage (ARM) has a starting interest rate that is fixed for a predetermined period of time and then at the end of that period the rate fluctuates for the remaining term of the loan. This often has lower monthly payments, and it also has a ceiling above which payments cannot go.
Fixed Rate Period
The fixed rate period can last for a variety of different time periods: 1, 2, 3, 5, 7 or 10 years depending on what loan best suits your situation.
The rate at which the loan starts at (start rate) is also the lowest that the rate will ever go over the life of the loan (floor rate). Most ARM's have a total term of 30 years.
The Index is the variable that the interest rate is tied to during the adjustable rate portion of the loan term. Any change in the interest rate can be attributed to a change in the index assigned to the loan.
There are a couple reasons why a customer would want an adjustable rate mortgage:
Borrower only plans to stay in his/her home for a short period of time.
Borrower has damaged credit and needs to refinance.
Adjustable-rate mortgages (ARMs) are loans with interest rates that change. ARMs may start with lower monthly payments than fixed-rate mortgages, but keep the following in mind:
Find out if an ARM Loan is right for you. Take a moment to fill out an application or call to speak with an experienced Mortgage Consultant today.