What is an ARM loan? An adjustable rate mortgage (ARM) is a mortgage which has an interest rate that can change throughout the loans existence. Typically, an ARM loan offers lower interest rates than a fixed rate mortgage, at the risk though that those rates may increase. ARM loans also typically offer a lower monthly home loan payment to homeowners, which is very appealing. Still though, it is best to do some basic research on ARM loans and this article will help.

Sometimes, in the initial term of an ARM loan, the interest rate will remain fixed, and not eligible for change. However, this time period of a stable interest rate usually expires after 6 months to 1 year, but can be as long as 10 years for some homeowners. When this term expires, your mortgage rates are eligible to change, and remain that way for the rest of the home loans duration. Typically, your interest rate will change as the housing index, and margins change. For the most part, mortgage rates go with the flow of these two crucial factors, and when these change, you can see an increase in interest rates. If your interest rate goes up, your monthly home loan payment will also rise, so be prepared for that.

A good thing though about ARM loans is that they almost always have a cap on how much the interest rate can rise. This is referred to as the “cap” or the loans interest ceiling. This cap limits how much your interest rate can rise throughout the loans length. Sometimes, a hybrid type of loan may be available to you. This is a loan that typically has a term that is fixed for half of the time, and adjustable for the remaining portion.

Each adjusted rate mortgage loan type is a good option, but only for homeowners who understand them, and know what they want from refinancing. As always, the best thing any homeowner can do is some research prior to signing any mortgage refinancing deal, whether its a fixed rate or an ARM loan.

-M Petrone

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