Adjustable Rate Mortgage (ARM)
Adjustable Rate Mortgage
An adjustable-rate mortgage (ARM) is a type of mortgage in which the interest rate applied on the outstanding balance varies throughout the life of the loan. With an adjustable-rate mortgage, the initial interest rate is fixed for a period of time. After this initial period of time, the interest rate resets periodically, at yearly or even monthly intervals. ARMs are also called variable-rate mortgages or floating mortgages.
A hybrid ARM offers potential savings in the initial, fixed-rate period. Common ARM terms are 5/6, 7/6 and 10/6. With a 5/6 ARM, for example, your introductory interest rate is locked in for five years before it can change. That gives you five years of predictable, low payments.
An ARM can be a good idea if your life is likely to change in the next few years — for instance, if you plan to move or sell the house. You can enjoy the ARM’s fixed-rate period and sell before it ends and the less-predictable adjustable phase starts.
The interest rate for ARMs is reset based on a benchmark or index, plus an additional spread called an ARM margin.
Get Started on Your Journey Home
Building your dream home or transforming your current property into the perfect living space requires careful planning and the right financial support. At George Mason …
Whether you’ve purchased a fixer-upper or are thinking about selling your home in the near future, it’s important to determine which renovations or upgrades can add value to your property.
In an effort to improve the mortgage lending experience, Fannie Mae and Freddie Mae required significant changes to the Uniform Residential Loan Application (URLA) used …