Adjustable Rate Mortgage

Adjustable-Rate Mortgage Information

As the term implies, the interest rate on an Adjustable-Rate Mortgage (ARM) may be adjusted during the life of the loan. This loan option is structured with an initial rate which is fixed for a certain term, followed by adjustments occurring on a specified schedule. As an example, a 3/1 ARM is a loan that has a fixed introductory rate for 3 years, followed by annual adjustments thereafter. Adjustments are determined by applying a pre-determined margin to the index to which the loan is tied. You will always receive advance notification of the change in your rate and payment, per your loan agreement.

ARMs are generally most beneficial for individuals who either anticipate a significant increase in their income over the upcoming years, those who will not be staying in their homes longer than the period of the initial rate of the loan, or those who need to minimize their monthly payments for the first few years of the loan.

The primary risk associated with an Adjustable-Rate Mortgage is the potential fluctuation in the interest rate and monthly payment amount. This risk is typically capped with a maximum annual increase and a maximum lifetime increase in the interest rate.