PRODUCTS

ADJUSTABLE RATE MORTGAGE

What is an Adjustable Rate Mortgage (ARM)?

An Adjustable Rate Mortgage (ARM) is a type of home loan where the interest rate can change periodically over the life of the loan. Unlike a fixed-rate mortgage where the interest rate remains constant, an ARM offers initial lower interest rates that adjust after a specified period.

Features and Benefits

  1. Lower Initial Rates: ARMs often start with lower interest rates compared to fixed-rate mortgages, making them attractive for borrowers seeking lower initial monthly payments.
  2. Potential Savings: If interest rates decrease or remain stable, borrowers may benefit from lower monthly payments during the adjustable period.
  3. Flexibility: ARMs offer flexibility for borrowers who plan to sell or refinance their homes before the end of the initial fixed-rate period, allowing them to take advantage of lower rates without committing to a long-term loan.
  4. Rate Caps: To protect borrowers from significant payment increases, ARMs typically come with rate caps that limit how much the interest rate can adjust during each adjustment period and over the life of the loan.
  5. Variety of Options: There are various types of ARMs available, including hybrid ARMs that combine features of fixed-rate and adjustable-rate mortgages, as well as interest-only ARMs that allow borrowers to pay only the interest for a certain period.

Considerations

While ARMs offer lower initial rates and flexibility, they also come with certain risks and considerations:

  1. Rate Fluctuations: The interest rate on an ARM can fluctuate over time, leading to potential increases in monthly payments, especially if market interest rates rise significantly.
  2. Payment Shock: Borrowers should be prepared for the possibility of payment shock – a significant increase in monthly payments – when the loan adjusts to a higher interest rate.
  3. Budgeting Challenges: Due to the unpredictable nature of interest rate changes, budgeting for future payments may be more challenging compared to fixed-rate mortgages.
  4. Refinance Risk: If interest rates rise substantially, borrowers may find it difficult to refinance their loans or sell their homes, potentially leading to financial strain.

Is an ARM Right for You?

Deciding whether an Adjustable Rate Mortgage is suitable for your financial situation depends on various factors, including your risk tolerance, future plans, and current market conditions. Contact us to see if an ARM is right for you.