Flexible Financing
An adjustable-rate mortgage, or ARM, is a home loan with an interest rate that can change. This is based on a predetermined index.
The initial interest rate of an ARM loan is often lower than a fixed-rate mortgage. This makes it attractive to those who plan to sell their home or refinance within a few years. However, if interest rates rise, the monthly payments on the loan may also increase. This can make it harder for the borrower to afford the loan.
There are different types of ARM loans available. Such as fixed-period ARMs and hybrid ARMs. Fixed-period ARMs have an initial fixed-rate period followed by adjustable rates. Hybrid ARMs have an initial fixed-rate period followed by adjustable rates that adjust annually.
It’s important to review the terms and conditions before committing to an ARM loan. Borrowers should consider their financial situation and the potential risks and benefits of an ARM loan.
If they plan to stay in their home for a long time, or if they are not comfortable with the possibility of higher monthly payments, an ARM loan may not be a good choice. However, an ARM loan may be a good option for those who plan to sell or refinance their home before the interest rate adjusts.
- Adjustable interest rate
- Lower initial rate
- Payment increase potential
- Short-term financing option
- Borrower consideration needed
- Rate caps may apply
With its lower initial interest rate and the potential for monthly payments to adjust with market conditions, an adjustable-rate mortgage can be a flexible and cost-effective option for financing a home.
