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An adjustable rate mortgage (ARM) is a flexible option to a traditional fixed-rate loan. While fixed rates remain the same for the life of the loan, ARM rates can alter at scheduled intervals-typically beginning lower than repaired rates, which can be appealing to certain property buyers. In this short article, we'll explain how ARMs work, highlight their potential advantages, and assist you figure out whether an ARM might be a great fit for your financial objectives and timeline.
What Is an Adjustable Rate Mortgage (ARM)?
An adjustable rate home mortgage (ARM) is a home mortgage with an interest rate that can change with time based upon market conditions. It starts with a fixed-rate period, generally 3, 5, 7, or 10 years, followed by scheduled rate adjustments.
The introductory rate is typically lower than a comparable fixed-rate home loan, making ARM home loan rates appealing to purchasers who prepare to move or refinance before the change period begins.
After the set term, the rate adjusts-usually every 6 months or annually-based on a benchmark index plus a margin set by the lender. If rate of interest go down, your monthly payment might reduce
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