An adjustable rate mortgage (ARM) is a flexible alternative to a conventional fixed-rate loan. While repaired rates remain the exact same for the life of the loan, ARM rates can change at scheduled intervals-typically beginning lower than repaired rates, which can be interesting certain property buyers. In this short article, we'll discuss how ARMs work, highlight their potential advantages, and help you determine whether an ARM could be a good suitable for your financial goals and timeline.
What Is an Adjustable Rate Mortgage (ARM)?
An adjustable rate home mortgage (ARM) is a mortgage with a rate of interest that can alter in time based upon market conditions. It starts with a fixed-rate period, typically 3, 5, 7, or 10 years, followed by set up rate modifications.
The initial rate is often lower than a similar fixed-rate home loan, making ARM home loan rates attractive to buyers who prepare to move or re-finance before the change period begins.
After the fixed term, the rate adjusts-usually every six months or annually-based on a benchmark index plus a margin set by the lender. If rates of interest go down, your month-to-month payment may reduce
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Adjustable Rate Mortgages Explained
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