Adjustable Rate Mortgages

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

Frequently Asked Questions

  • How does an adjustable-rate mortgage work?

    A house loan with a variable interest rate is known as an adjustable-rate mortgage (ARM). The initial interest rate on an ARM is fixed for a set length of time. Afterwards, the interest rate on the outstanding debt is reset on a yearly or even monthly basis.

  • What are the dangers of an adjustable-rate mortgage?

    The following are the most typical dangers associated with adjustable rate mortgages.


    • Payment shock and rising monthly payments
    • Amortization with a negative value...
    • Prepayment penalties
    • Depreciating house value

  • How often do ARM loans adjust?

    The interest rate and monthly payment on most ARMs can change every month, quarter, year, three years, or five years. The adjustment period is the time between rate increases.

  • Why would you get an adjustable-rate mortgage?

    There are some advantages to getting an adjustable-rate mortgage. It has lower interest rates and payments at the beginning of the loan period. People can qualify more expensive  homes than they would otherwise be able to because lenders can take the reduced payment into account when qualifying borrowers. It enables borrowers to benefit from dropping interest rates without refinancing.

  • Is it easier to qualify for an adjustable rate mortgage?

    Obtaining an adjustable-rate mortgage is no more difficult than obtaining a fixed-rate loan in terms of creditworthiness. Because an ARM offers a smaller monthly payment, it may be simpler to qualify based on the debt ratios used by mortgage lenders.

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