5-Point-5
5 Things to Know About Adjustable-Rate Mortgages
An adjustable-rate mortgage, or ARM, works differently from a fixed-rate mortgage.
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An adjustable-rate mortgage, or ARM, works differently from a fixed-rate mortgage. Here are five things to know.
1. The Starting Rate
ARMs often begin with a lower interest rate than comparable fixed-rate mortgages, which can mean a lower initial payment.
2. The Initial Fixed Period
The rate doesn't change immediately because an ARM typically starts with a period when the interest rate remains fixed.
3. How Adjustments Work
After that period, the rate can adjust based on a specified market index plus a margin established by the lender.
4. Rate Caps Provide Limits
ARMs have caps that limit how much the rate can increase at each adjustment and over the life of the loan.
5. Your Timeline Matters
An ARM may make sense if you expect to sell or refinance before the adjustable period becomes a major factor.
An ARM is simply another financing tool. Whether it makes sense depends on your goals, timeline, and the terms of the loan.