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Adjustable rate mortgages (ARM) are advantageous because they usually have lower initial payments and give you more bang for the buck if you plan to own your home for less than 10 years. An adjustable rate mortgage is one where the interest rate remains fixed for a period of time, typically 5, 7 or 10 years. For example, a 5/1 ARM locks in the current interest rate for five years. After that, however, the rate for that particular product will change based on a predetermined index + margin with a cap. ARMs could start with better interest rates than fixed-rate mortgages, in order to compensate the borrower for the risk of future interest rate fluctuation. If you only plan to live in your new home for a few years, this could be a helpful option. Work with one of our mortgage professionals to determine if an ARM is the right fit for your mortgage needs.
Benefits of an Adjustable Rate Mortgage:
- Potential to lock in a low interest rate and, if needed, sell your home before it rises
- Could offer lower interest rates than fixed-rate loans
- Rate adjustments could have caps to keep them from going too high
- Rates could possibly go down, saving you money