AdjustableRate Mortgages ARMs Handling

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. With an ARM, the initial interest rate is fixed for a period of time, after which it resets periodically, often every year or even monthly.

A Fixed Rate Mortgage has the same payment for the entire term of the loan. The main difference between them lies in how interest rates are handled: In a fixed-rate mortgage, interest rates remain unchanged throughout the term while in an ARM, as its name implies, it adjusts over time.

Before choosing an ARM, consider factors such as how long you plan to stay in your home, your financial stability and ability to handle potential payment increases in future, current market conditions and predictions on where interest rates may go.

The biggest advantage of ARMs can be lower initial interest rates compared to fixed-rate mortgages. This could potentially result in lower monthly payments at first. However, since ARMs are unpredictable and can increase over time due to changes in financial markets, they carry more risk than fixed-rate loans.

Most ARMs adjust annually after their initial fixed period ends. However some may adjust more frequently like monthly or quarterly. These adjustments are usually influenced by a pre-disclosed margin plus a benchmark index such as U.S Treasury Securities or London Interbank Offered Rates (LIBOR). The specific terms will be outlined in your mortgage contract.