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Adjustable-rate mortgages (ARMs) can allow you to land a lower interest rate in today's high-rate environment. However, ARMs aren't without risk, and they're only right for certain borrowers in certain situations. Find out how ARMs work and whether this type of home loan is right for you.
ARMs behave like two different mortgages rolled into one loan agreement. It begins with a fixed-rate term, usually between five and 10 years. During this period, your interest rate and payment will remain the same.
After that, it converts to a variable-rate loan with an interest rate that can change (up or down) every six months or annually. This means your monthly mortgage payment also changes.
To fully understand how ARMs work, you need to understand what their formulas mean. For example, let's examine the "5/1" ARM:
#rate
Adjustable-rate mortgages (ARMs) can allow you to land a lower interest rate in today's high-rate environment. However, ARMs aren't without risk, and they're only right for certain borrowers in certain situations. Find out how ARMs work and whether this type of home loan is right for you.
ARMs behave like two different mortgages rolled into one loan agreement. It begins with a fixed-rate term, usually between five and 10 years. During this period, your interest rate and payment will remain the same.
After that, it converts to a variable-rate loan with an interest rate that can change (up or down) every six months or annually. This means your monthly mortgage payment also changes.
To fully understand how ARMs work, you need to understand what their formulas mean. For example, let's examine the "5/1" ARM:
#rate
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