Adjustable Rate Mortgage
An ARM is an Adjustable-Rate Mortgage. Unlike a fixed-rate loan, the interest rate on an ARM changes periodically. The initial rate is lower than a fixed-rate mortgage, so an ARM may be worth considering if you plan to own the home only a few years, you expect future income to rise, or fixed rates are currently high.
While ARMs offer lower initial payments, the rate and payment can rise significantly after the introductory period, depending on the market. That makes them less predictable than fixed-rate loans.
Adjustable Rate Mortgage Characteristics
Lower initial interest rate than most fixed-rate mortgages
Rate adjusts at set intervals after the introductory period, based on an index
Monthly payments can rise or fall with market rates
Most ARMs include caps limiting how much the rate and payment can change
Attractive to buyers who plan to sell or refinance before the first adjustment
Potential short-term savings if not kept long term
More risk than fixed-rate loans because future payments are uncertain
A strategic choice for expected income growth or short-term ownership; less ideal for stability seekers
5) Conventional loans offer options for fixed or adjustable interest rates
6) Conventional loans can be used to purchase a variety of property types, including single-family homes, multi-unit properties, and condominiums
7) Conventional loans do not require mortgage insurance if the borrower puts down at least 20% of the purchase price
8) Conventional loans offer options for refinancing, including cash-out refinancing and rate-and-term refinancing, which can help borrowers lower their monthly mortgage payments or access equity in their home.
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