Introduction

ARMs are fixed-rate mortgages that allow your interest rate to change over time. The first month after you get an adjustable-rate mortgage, your interest rate will be fixed at the initial starting rate or current market rate. After that, your interest rate may change after specific intervals of time. You’ll have a set number of periods when your interest rate is fixed, which enables you to know what your mortgage payment will be for a set period of time on any given day. The interval during which the loan has a fixed rate is called the adjustment period or adjustment cap period; after this period ends, either your lender can raise or lower your monthly payment amount by changing the interest rate.

ARM basics

An adjustable-rate mortgage (ARM) is a type of mortgage loan in which the interest rate can change over time. The most common types of ARMs are ones with a fixed introductory period, followed by one or more periods where the interest rate may adjust once every year or more frequently.

The name comes from the fact that these loans have an “adjustable” interest rate–meaning it can change over time based on economic factors and market conditions.

ARM definition

An adjustable-rate mortgage (ARM) is a mortgage loan in which the interest rate can change over time.

The first month after you get an ARM, your interest rate will be fixed at the initial starting rate or current market rate. After that, it’s possible for your mortgage payment to increase or decrease depending on adjustments made to its underlying index (for example, LIBOR).

ARM interest rates

ARM interest rates are tied to an index, which is a number that changes based on the performance of the market. The most common indices used by ARMs are the 1-year Treasury auction rate and the Prime Rate (the interest rate lenders charge their best customers).

As part of your mortgage application process, you’ll be asked to choose an ARM with either a fixed or variable rate. In general, fixed-rate mortgages have lower initial monthly payments but higher overall costs than their adjustable counterparts because they lock in at one rate for the life of your loan; they also require more upfront money due to higher closing costs associated with full amortization loans rather than interest-only payments made over time like most ARMs do today.

ARM terms

The term of an ARM is the period of time over which you will pay off your loan. For example, if you borrow $200,000 to buy a house with an adjustable-rate mortgage (ARM) with a 30-year term and then make payments for three years at 4% interest–the current average rate on a fixed-rate mortgage–you’ll end up paying about $300,000 in total interest.

You may also hear about caps and indexes when discussing ARMs:

• Caps limit how much interest rates can change from one adjustment to the next. For example, if your cap is 2%, then each time there’s an adjustment in rates after that initial period ends (usually every year), they can only increase by no more than 2%. So if you started out at 4% but had a 2% cap during those first few years before moving into another tier where there was no cap at all, then after two years, your payment might rise above 6%. But if there were still some room left under this limit–for instance, because rates hadn’t risen as quickly as expected or because they stayed flat while inflation increased–your lender might not be able to raise them any further until 2020 (when another reset occurs).

ARM advantages

• Adjustable rate mortgages (ARMs) are a good option if you expect your income to increase in the future.
• ARMs have lower monthly payments than fixed-rate mortgages, which can help some borrowers qualify for more homes than they could with a fixed-rate loan.
• ARMs carry higher interest rates than other types of loans and may require higher down payments as well.

ARM disadvantages

Adjustable rate mortgages (ARMs) are loans that have interest rates that can change over time. This is different from fixed-rate mortgages, which have a set interest rate for the entire term of the loan.

As an ARM borrower, you’ll be able to get a lower initial monthly payment than you would with a fixed-rate mortgage. However, there is also more risk involved because your monthly payments could increase in the future if interest rates rise or decrease–and this could affect whether or not you’re able to afford your home payments on time each month!

ARM risks

There are several risks associated with ARMs.

• The risk of rising interest rates: In an ARM, your monthly payment will be lower than it would be for a fixed-rate mortgage. However, if interest rates rise during the life of your loan (and they’re expected to), then your payments could go up as well. This can make it difficult for you to afford your home and could lead to a foreclosure if you don’t have enough cash on hand to pay off what’s owed in full when it comes time for renewal or refinancing.
• The risk of having to pay more than expected: Another factor that affects how much money you’ll pay each month is how much was originally borrowed by the borrower at origination–that is, when they took out their first loan from their lender (in this case, us!). If we set up an initial contract where there was no adjustment period built-in and then later decide on one ourselves based on market conditions at that time–and if those conditions were worse than expected–it means we’d have overcharged our customers by charging them higher interest rates than necessary just so we could recoup some losses from our previous mistakes! That’s why we always recommend checking all details before signing anything official with anyone; even though most companies will treat customers fairly during times like these…there’ll always be someone who doesn’t care about doing things right, especially when money’s involved!”

ARM benefits

Adjustable rate mortgages (ARMs) offer several benefits that may make them more attractive than fixed-rate mortgages, especially for people who expect to sell or refinance their homes within a few years.

• Lower interest rates: Adjustable-rate mortgages often have lower initial interest rates than fixed-rate mortgages. That’s because the lender can charge you a higher rate when it feels confident about the future of your area’s housing market and expects to earn more money from you over time through increases in your monthly payments.
• Potential for lower payments: If you’re planning on staying in your house for less than five years before selling or refinancing, an adjustable-rate mortgage could be beneficial because it allows you to pay less each month than what would be required with a traditional fixed-rate loan (depending on how much time has passed since signing).

ARM rates

An ARM has an interest rate that can change over time. The initial interest rate is called the “starting rate” or “current market rate,” and it will stay in effect for a set period of time (typically five years). After that period ends, the rate can be adjusted annually based on changes to financial indexes like LIBOR (London Interbank Offered Rate). The adjustment takes place every year on whatever date specified by your lender at origination; this date may vary from lender to lender.

ARM loan

An adjustable-rate mortgage (ARM) is a type of mortgage loan that has an interest rate that changes over time. The first month after you get an ARM, your interest rate will be fixed at the initial starting rate or current market rate. After this initial period, your lender can change your monthly payment based on how much they decide to raise or lower it each year.

The amount by which an adjustable rate mortgage changes every year depends on how long you’ve had it: if you have less than five years left until maturity or early payoff, then there will only be one adjustment per year; if it’s been more than five years since origination but less than seven years out from maturity/early payoff date (or eight years in some states), then two adjustments per year; otherwise three adjustments per year!

ARM vs. fixed-rate mortgages

If you’re looking to buy a home, here’s what you need to know about ARMs and fixed-rate mortgages.

• What is an adjustable-rate mortgage?

An adjustable-rate mortgage (ARM) is just like any other type of loan in that it allows homeowners to borrow money from lenders and pay it back over time. The primary difference between ARMs and fixed-rate mortgages is that the interest rates on ARMs change over time based on market conditions, while the interest rate for a fixed-rate loan remains constant throughout the entire life of your loan contract.

ARMs are a type of mortgage loan in which the interest rate can change over time. The first month after you get an adjustable-rate mortgage, your interest rate will be fixed at the initial starting rate or current market rate. After that, your interest rate may change after specific intervals of time. You’ll have a set number of periods when your interest rate is fixed, which enables you to know what your mortgage payment will be for a set period of time on any given day. The interval during which the loan has a fixed rate is called the adjustment period or adjustment cap period; after this period ends, either your lender can raise or lower your monthly payment amount by changing the interest rate.

The interest rate can change over time. The first month after you get an adjustable-rate mortgage, your interest rate will be fixed at the initial starting rate or current market rate. After that, your interest rate may change after specific intervals of time.

You’ll have a set number of periods when your interest rate is fixed, which enables you to know what your mortgage payment will be for a set period of time on any given day. The interval during which the loan has a fixed rate is called the adjustment period or adjustment cap period; after this period ends, either your lender can raise or lower your monthly payment amount by changing the interest rate.

Conclusion

The bottom line is that ARMs are a good choice for borrowers who want to keep their monthly payments low but can afford to pay more than what they would if they had a fixed-rate loan. They are also useful when homeowners want to refinance their existing mortgage because they can get better terms with an ARM than if they had stayed with their current lender.