QandAs: Loans

What are the most common terms for an Adjustable Rate Mortgage

Answer:
Adjustable Rate Mortgages (ARMs) offered by

most banks have a length of 30 years. The interest rate starts out fixed for a certain period of time (1, 3, 5, 7, or 10 years), then adjusts every year depending on certain factors.

The rate of an ARM is lowest at the beginning, so your payment will increase at the first change date. It may go up further from year to year.

There are caps on how much the interest rate can increase each year and over the life of the mortgage loan. The rate is determined by adding a fixed amount (known as the margin) to a specific financial index such as the prime rate .