Adjustable-Rate Mortgage

ARM Article


An Adjustable-Rate Mortgage, often referred to as an ARM, is a loan option with a set interest rate for a fixed period. Once the fixed period is over, the interest rate will periodically reset to the current rates. The range for the starter period can be three, five, seven, or ten years. After the starter period comes to an end, the interest rate will adjust yearly–the number of adjustments will be written in the closing disclosure. If a borrower chooses 3/1, for example, three indicates how long the interest rate is fixed, and one represents how many times the interest rate will re-adjust per year.

There are a few options for adjustable-rate loans.

  • Hybrid ARM
    • Offers a mix of fixed and adjustable rates.
  • Interest-only ARM
    • Allows borrowers to only pay the interest on the loan for a designated time and then begin paying towards both the interest and principal.
  • Payment-only ARM
    • Offers three choices:
      • (1) Pay towards your interest rate and principal.
      • (2) Make interest only payments.
      • (3) A limited payment that can be less than the interest due that month.

Adjustable-rate loans are great for borrowers in flexible situations. If you see yourself living in a home for a short period of time, like to travel, or see yourself making more money in the near future, an adjustable-rate loan may be ideal for you. Contact your mortgage lender to talk more about your options and resources.

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