Interest that adjusts over time based on the market
Adjustable Rate Mortgages (ARM’s) start at a low fixed rate for a specified amount of time but then become variable throughout the life of the loan.
Why can this be of value to you when buying or refinancing a home? Well, the initial interest rate for Adjustable-Rate Mortgages is normally lower than the interest rate you will pay with a Fixed Rate Mortgage, thus lowering your monthly payments.
Additionally, if interest rates drop after the loan switches to variable, you will save money as the rate on your Adjustable Rate Mortgage will drop as well.
However, if interest rates rise when your loan is variable, your rate will increase after your fixed period ends. An Adjustable Rate Mortgage is the perfect loan product for people who plan on living in the home for five years or less.