DEFINITION of ‘Adjustable-Rate Mortgage – ARM’. An adjustable-rate mortgage (ARM) is a type of mortgage in which the interest rate applied on the outstanding balance varies throughout the life of the loan. Normally, the initial interest rate is fixed for a period of time, after which it resets periodically, often every year or even monthly.
Deeper definition. An adjustable-rate mortgage allows for the lender to change the interest rate at certain points during the term of the loan. adjustable-rate mortgages often start out with a low interest rate, even sometimes below market rates. However, the rate can increase or decrease significantly over the life of the loan.
One of the biggest decisions you will have to make is whether to choose a fixed-rate or an adjustable rate mortgage (ARM). Though roughly 85 percent of homebuyers choose a fixed-rate mortgage, due to its affordability and stability, there are many pros to choosing an ARM for the right borrower.
Since an ARM is a hybrid mortgage, meaning that it involves both a fixed interest rate and an adjustable interest rate in the same mortgage, a lower interest rate is given during the initial fixed rate years than if you were to have gotten a fixed rate mortgage for the entire duration of your mortgage.
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Remember adjustable-rate mortgages, which helped pump up the U.S. housing bubble that led to the financial crisis? Well, those things are back. year fixed-rate mortgage, up from a record low of.
Adjustable Rate Mortgages Are Back In Style, But Is This Good For You? Adjustable rate mortgages, or ARMs have made a comeback. The much-maligned mortgage is partially to blame for the bursting of the housing bubble in 2008. Despite its checkered past its now being sought after by thousands of homeowners across America.
Adjustable-Rate Mortgages. Also known as an ARM, the adjustable-rate mortgage gives you a lower interest rate for an initial period (usually 3, 5, 7, or 10 years). After that period lapses, your monthly mortgage payment and interest rate may change yearly based on current interest rates.
Adjustable rate mortgages. In this low-interest rate environment, do NOT get an adjustable rate mortgage unless you know for a fact that you will sell the home in the next year or two. Right now, fixed rates are so low there is no advantage to adjustable rate loans!