Adjustable Rate Mortgage (ARM)
The Adjustable Rate Mortgage (ARM)
Adjustable-rate mortgages usually offer lower interest rates and mortgage payments at first because the borrower assumes the risk of changes in interest rates. Borrowers choose ARMs because the lower initial payment makes the home more affordable at first, but the borrower must be willing to accept the risk of an increased mortgage payment, which can sometimes be significantly higher.
Types of ARMs: 3-year, 5-year, 7-year, 10-year amoritized over 30-years
Minimum Down Payment: 5%
Upside: An ARM usually offers a lower initial rate of interest than fixed-rate loans.
Downside: After an initial period, rates fluctuate over the life of the loan. When interest rates rise, generally so do the loan payments. If you find yourself in this situation, refinancing your mortgage may make financial sense.