QandAs: Loans

What is an Adjustable Rate Mortgage or ARM?

Answer:
The interest rate of an Adjustable Rate Mortgage or ARM

can change over time. ARMs start out with a fixed rate for anywhere from 1 to 10 years. This initial rate is usually lower than the prevailing market rate, which means your payments will start out lower than with a regular fixed-rate loan.

However, your payments will increase once the rate begins to change. ARMs adjust at regular intervals, typically once a year, although it can be as long as every 5 years.

There is a cap on how much the rate can increase at each change date and over the life of the loan. Many consumers choose ARMs for the attractive initial rate and because they intend to refinance or sell their home before the rates start to adjust.

Try our Adjustable Rate Mortgage Calculator .


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