Adjustable-Rate Mortgages
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What is an Adjustable Rate Mortgage?
An adjustable rate mortgage or ARM for short, is a type of mortgage loan that can be adjusted at pre-set intervals. A hybrid ARM is usually fixed for a set period of time, followed by periodic adjustments according to a specific benchmark.
How Adjustable Rate Mortgages Work
The initial interest rate on a hybrid ARM will remain in effect for a period of time ranging up to 10 years. With ARMs, the interest rate and monthly payment changes occur based on the loan option chosen and your final note. The period between interest rate changes is called the adjustment period. Please be sure to ask your loan officer what these adjustment periods will be for your chosen loan.
Adjustable Rate Mortgage Advantages
- Allows you to have lowest interest rate lower monthly payment for a short period.
- Option to refinance if interest rates drop.
- Use the savings to pay down other debt or for other purposes.
- Great option if you want to sell your house shortly.
- Save thousands in payments vs a fixed-rate loan during the initial period.
Adjustable Rate Mortgage Disadvantages
- Normally you must refinance after the ARM period is over otherwise the rate could be higher.
- It is likely that after the ARM period is over you might have to refinance at a higher rate if the interest rates are high.
- Payments may change over time.
