Adjustable Rate Loan
Adjustable Rate Mortgages (ARM) give borrowers a lot of flexibility when it comes to rates. An Adjustable Rate Mortgage is originally fixed at the beginning of the loan period. The interest rate then continues to be fixed for a set amount of time. After that set amount of time is up, the interest rate on the loan then becomes adjusted on a monthly basis. The interest rate is connected to indexes such as the London Interbank Offered Rate (LIBOR).
Adjustable Rate Loans may be the perfect fit for…
- Homebuyers planning to move from the property in only a few years.
- Borrowers looking for lower payments at the beginning of their loan.
- Borrowers who are comfortable with different payments each month after the rate adjusts.
Rate is fixed at the loan’s origination
When the loan is originated, the interest rate is fixed for a set period of time. This time allows borrowers to become comfortable with the new monthly payments before adjusting.
Borrowers can take advantage of low rate periods
When mortgage rates are low, your monthly payment decreases.
Interest rate caps
There are ceilings placed on the adjustable interest rate. Therefore your monthly payments can only increase so much due to rising rates.
When rates are lower, so is your mortgage payment. That means saving money when rates are lower.
Flexibility in your decision making
Adjustable rate mortgages may give borrowers more flexibility when it comes to moving decisions.