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An adjustable-rate home mortgage begins with a fixed interest rate for an initial period. Later, usually in three to five years, the interest rate and monthly payment readjust based on current lending and mortgage conditions.
What is an Adjustable Rate Mortgage?
An Adjustable Rate Mortgage or “ARM” is a long term home loan with an initial period where the rate is fixed. This initial period is typically 3 or 5 years. During this initial rate period, an ARM acts just like a Fixed Rate Mortgage, although the ARM might start out with a lower interest rate than a Fixed Rate Mortgage. Once an ARM matures past the fixed-rate portion of the loan, the rate and monthly payment will readjust based on current lending rates and market conditions. For example, a 5-year ARM loan would have a fixed rate for 5 years. After 5 years, the rate could fluctuate up or down and then the new rate would be fixed for the next 5 years. The rate will continue to adjust every 5 years until the loan matures.
An ARM might be a good option for a short-term buyer because ARMS typically start out at lower rates with lower monthly payments compared to fixed-rate loans, but that’s only during the initial rate period. Once that initial rate expires, rates and payments could increase. Home buyers who know they are going to be moving within a few years might want to check into an ARM. Not sure if an ARM is right for you? You should talk with a Blue Diamond Mortgage Expert from First National Bank to discuss your particular needs.
Contact a Blue Diamond Mortgage Specialist. We’ll take the time to sit down with you to discuss current ARM options and the best mortgage product for your particular needs.