Adjustable Rate Loan
An adjustable rate mortgage (ARM) can offer a homeowner a way to save money on their loan in the short term, with a variety of payment options in the future. ARMs offer a great deal of flexibility to borrowers. An ARM loan has an initial fixed rate for a period of time, then the rate becomes adjustable. Most rates themselves will be tied to indexes like the London Interbank Offered Rate (LIBOR).rn
rnThe decision to go with a variable rate mortgage or one with a fixed interest rate will depend upon your personal situation.
ARM Loans are especially attractive to…
- Borrowers who are looking for a lower initial payment.
- Borrowers who don’t plan to be in their homes for a long period of time.
- Borrowers looking for flexibility to tailor the fixed and adjustable portion of the loan to their situation.
Initial fixed interest rate
Adjustable Rate Mortgage (ARM) rates are initially fixed for a period of time that you choose.
Lower initial payments
The initial payments during the fixed portion of the loan are usually lower than a comparable fixed rate loan.
If you aren’t planning to stay in your home for a long time, the variety of adjustment periods offers flexibility and potentially lower costs to borrowers.
Caps on the increases
An adjustable ARM has a cap on the amount that the interest can rise in any adjustment period.
You can invest the savings
The money saved on the initial payments can be invested for other purposes.
Take advantage of falling rates without refinancing
In periods of falling interest rates, borrowers can take advantage without having to refinance their mortgage.