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Adjustable Rate Mortgage

What is an ARM?

An ARM is a loan that offers a lower initial interest rate than most fixed-rate loans. The trade-off is that the interest rate is fixed for only a few years (usually five to seven years). After that initial fixed period, the interest rate can change every year based on a pre-selected financial index associated with the loan. As a result, your monthly payment will increase or decrease accordingly. In short, you receive a lower interest rate with an ARM in exchange for assuming more risk.

Key Things to Remember

  • With most ARMs, the interest rate and monthly payment are fixed for an initial time period, such as one year, three years, five years or seven years. After the initial fixed period, the interest rate can change every year.
  • If you are searching for the lowest rate available, ARM loans offer you that low rate.
  • ARM loans are unpredictable, with the rate fluctuating (increasing and/or decreasing) periodically.
  • With an ARM loan, buyers often qualify for a higher mortgage and the opportunity to buy a more expensive home at a lower interest rate.
  • With an ARM, your monthly mortgage payment will increase when the rates increase, and it is important to prepare for higher mortgage payments.
  • If you plan to move prior to the end of the fixed-rate period (usually five to seven years), and will not incur the rate fluctuation, an ARM is an option to consider.

Popular Among:

  • Buyers with higher risk tolerance
  • Buyers planning on staying in their home for less than the time it takes to pay off a fixed mortgage

To learn more about which loan option is best for you, call to speak with one of our expert mortgage bankers or if you're ready, get started today. We’re here to provide you with a clear path to home ownership!

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The above information is for educational purposes only.