Adjustable Rate Mortgage (ARM)
Adjustable-rate mortgage loans (ARMs) have an interest rate that will change or “adjust” from time to time. The most common type of ARM has a rate that will change yearly, after an initial period of a fixed rate. For example, a 3/1 ARM loan has a fixed interest rate for the first three years, after which the rate will change every one year. Because the rate doesn’t change, or is “fixed” through this initial period and then “adjusts” thereafter, this type of loan is often referred to as a “hybrid” product.
Benefits of an ARM
- During the initial period, the interest rate is generally lower as compared to average rates for fixed-rate mortgages.
- Lower initial interest rates result in a lower payment through the initial term of an ARM
- ARM loans have a rate cap that limits how much the rate can change from one month to the next, and over the life of the loan.
- An economical choice for buyers who only plan to stay in the home for a few years.
Other Loan Options
Did you know ARMs offer some of the lowest rates and can be a great solution for buyers who plan on staying in their home less than 3-5 years?
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