Adjustable Rate Mortgage (ARM) - Read about the Adjustable Rate Mortgage at A1HomeMortgageInfo.com

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Adjustable Rate Mortgage
An Adjustable Rate Mortgage (ARM) does not apply the same interest rate toward monthly payments for the life of the loan. Throughout the life of that loan, the homebuyer's principal and interest payment will adjust periodically based on fluctuations in the interest rate.

For example, a lender could offer a 30-year ARM (Adjustable Rate Mortgage) loan to a homebuyer at an initial 6.5% interest rate. During an adjustment period for the ARM loan, the market interest rate could rise to 8.0%, resulting in a significantly larger interest payment. Similarly, the market interest rate could decrease to 6.0%, resulting in lower interest payments.

Adjustable Rate Mortgage benefits include:

Initial payments lower due to lower beginning interest rate, usually about 2 percentage points below the fixed rate.

Ability to qualify for a higher loan amount due to lower initial interest rates.

Lower interest payments if the interest rate drops over time.

Interest rate caps limit the maximum interest payment allowed for the loan.

Adjustable Rate Mortgage considerations include:

Initial lower interest rate and monthly payments are temporary and apply to the first adjustment period. Typically, the interest rate will rise after the initial adjustment period.

Higher interest payments if the interest rate rises over time.

For more information, see: What is An ARM?

For information on fixed-rate mortgages, see: Fixed rate mortgage info

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