Adjustable-Rate

An Adjustable-Rate Mortgage, or “ARM,” typically has a lower interest rate in the first years of its term. Then, the interest rate can change – “adjust” – over time, based on an adjustable rate mortgage index, which is spelled out in the terms of the loan. A 5/1 ARM, for example, is a five year adjustable rate mortgage with a low interest rate that remains the same for the first five years of the loan, then adjusts every year thereafter. Typically, an ARM will have low and a high limit on how much your payments can change over a given period of time, as well as over the term of the loan.

An ARM is often attractive to a buyer who expects to stay in their home for only a few years. For example, if you purchase a 5/1 ARM – with a low, set rate for the first 5 years – and plan to move before the mortgage rate adjusts to a higher rate, you can save money on your interest costs. So whether an ARM is right for you all depends on your circumstances and goals.