Adjustable Rate Mortgage Basics
Adjustable Rate Mortgages or (ARM’s) are loans whose interest rate can vary during the loan’s term. These loans have a fixed interest rate for an initial period of time (usually 3, 5, 7, or 10 years) and then typically adjust on a yearly basis. The initial rate on an ARM is usually going to be lower than than what is offered with a 30 Year fixed mortgage and can be advantageous if you plan on being in your home with a timeline of one to ten years.
Advantages Of An Adjustable Rate Mortgage
This lower interest rate can save you hundreds if not thousands of dollars in payments per month and over time usually performs better than a typical 30 year fixed rate mortgage. With an adjustable rate mortgage you do not have to pay for the ability to fix the rate for a full 30 years as you do with a 30 year fixed mortgage. You only pay for a fixed rate for as many years as you need it, no more.
Adjustable rate mortgages also give you the ability to make interest only payments. Interest only payments can significantly lower your monthly payment.