Adjustable Rates Mortgage
Adjustable Rates Mortgage
An ARM is a home loan where the interest rate can fluctuate periodically after an initial fixed-rate period, often determined by specific market indices. ARM rates are linked to financial indices such as the LIBOR or Treasury rates. Fluctuations in these indices influence the periodic rate adjustments.
Lower initial interest rates and monthly payments can be beneficial. There’s also the possibility of benefiting from decreased rates if the market experiences a downturn.
The primary risk involves potential rate increases after the initial fixed period, which can lead to higher monthly payments. Market fluctuations may result in unpredictable adjustments.
Yes, most ARMs have interest rate caps, limiting how much the rate can increase at each adjustment period and over the loan’s lifetime.
Individuals planning to relocate or refinance before the initial fixed period ends might benefit. Also, those expecting an increase in income to manage potential rate hikes.
ARMs come in different forms, such as hybrid ARMs (with initial fixed periods followed by adjustable rates) or interest-only ARMs, allowing interest payments initially.
