What is an Adjustable Rate Mortgage?

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What is an Adjustable Rate Mortgage?

The mortgage brokers call the Adjustable Rate Mortgage an ARM. Well… it’s not one of your arms. An ARM (Adjustable Rate Mortgage) interest rates changes after a fixed period, usually between 3 to 10 years after its start.

Basically, it’s a fixed-rate for a certain period – 3 to 10 years – and afterwards, it is adjusted using a rate based on an underlying index like LIBOR (London Interbank Offered Rate) or the Constant Maturity Treasury (CMT), for example, plus a margin.

Understanding how your interest rate can change and how this can increase your payment is essential. Fixed-rate mortgages have the same interest rate and monthly payment for the life of the loan, for an ARM, the interest rate and monthly payments change.

By | 2017-01-24T12:19:38+00:00 January 23rd|Categories: Interest rates, Mortages|Comments Off on What is an Adjustable Rate Mortgage?