Adjustable Rate Mortgage
Unisource Mortgage Services, Inc.
An adjustable-rate mortgage, also known as an ARM, is a popular type of mortgage that has an introductory interest rate that lasts for a set amount of time before changing, or adjusting, at regular intervals for the rest of the loan. This type of mortgage is called an ARM. People like adjustable-rate loans because they usually have lower interest rates than fixed loans. When the interest rate resets, your mortgage payment will change, but it will stay the same. ARMs have maximum interest rate changes (caps) that are used to figure out how much money each person will pay each month.
Depending on the ARM, the initial interest rate could be fixed for as short as 60 months or as long as 10 years. Many borrowers who find that ARMs are a good fit for their future homeownership ambitions choose a 5-year or 7-year ARM. The interest rate on these hybrids is fixed for the first months of the loan, 60 or 84 months, respectively, and then resets annually for the remainder of the period. 5/1, 7/1, or 10/1 ARMs have a fixed duration followed by annual modifications. The defined periods may be used for planning purposes, such as comparing to the time range in which you intend to live in this home in the future.
Benefits of An Adjustable Rate Mortgage
- Lower interest rates than fixed loans
- Easier to qualify for than a traditional mortgage
- Get a lower monthly payment in the beginning of the loan
- The interest rate can never rise above a certain percentage