While not technically a mortgage product on its own, an Adjustable Rate Mortgage is so popular that they are often thought of as one. Any mortgage can be an Adjustable Rate Mortgage simply by having an interest rate that, well, adjusts.
Let our team explain further:
An adjustable rate mortgage, also known as (ARM) is a loan which offers interest rates that can change during the existence of your loan. The interest is normally a fixed interest at the start of the loan for a certain period of time. Then it may vary and be adjusted occasionally based on the outcome of a financial index, such as the average interest rate or yield on treasury bills.
Types of Adjustable Rate Mortgages
There are a number of mortgages that offer adjustable rates, and can, therefore, be called Adjustable Rate Mortgages. Some mortgages that offer adjustable rates are:
Benefit of an Adjustable Rate Mortgage
Adjustable Rate Mortgages have a few main benefits. Utilizing an ARM loan to finance the purchase of your home is something that has become more popular in the upcoming years. There are definitely advantages to having a fixed rate, below are many benefits to an adjustable rate mortgage loan.
Lower Interest Rate
The initial interest rate on these adjustable products is often lower than their fixed-rate counterparts. The initial rate is often fixed for a period of time before it starts adjusting—typically five, seven, or 10 years. It will then adjust on a fixed schedule outlined when the loan is first obtained—typically every six to 12 months.
Adjustable Rate Mortgages may benefit those who are looking for a lower monthly payment at first, and expect to afford a larger payment as their income increases or their circumstances change. It also offers a lower monthly payment for those planning on selling before the interest rate begins to adjust.