Adjustable Rate Mortgages, ARMs, are typically mortgages where the monthly payments amortize over 30 years. But the interest rate is not fixed over that entire 30 year term. These loans usually have a fixed interest rate for an introductory period of 1, 3, 5, 7, or 10 years.
The interest rate during the introductory period may offer a lower starting rate than a comparable 30-year fixed mortgage. This is why borrowers may want to take an ARM over a fixed rate mortgage. After the introductory fixed rate period, the interest rate will begin adjusting at a regular periodic time frame. Typically one adjustment is made per year until the loan is paid off. During the adjustable rate period, the rate can go up or down, depending on market factors.
ARM loans help investors or homeowners who know they will only keep the property for a limited period of time. Also, homeowners who are savvy enough to be able to play market fluctuations may benefit. These products can be complicated. You’ll need to spend some time with me on the phone or in person to fully understand whether or not these options are the best for your particular situation.