Adjustable rate mortgages (ARMs)
Adjustable rate mortgages have interest rates that may vary up or down at fixed intervals, and often offer a low beginning interest rate that will go up after a certain time.
- Interest rates and payment amounts may fluctuate
- Transfers a portion of the risk associated with a changing economy to buyers
- In exchange for sharing the risk, ARMs offer substantially lower initial interest rates than fixed rate mortgages
- Lower initial interest rates may help applicants qualify more easily; qualifying factors may vary
For example, some loans could be formatted as 5/1, 7/1, or 10/1 ARMS. In this scenario, the payment will be fixed for the first 5-, 7-, or 10-years and then adjusts every 12 months.