An adjustable-rate mortgage, or ARM, is a home loan with an interest rate that typically stays fixed for an initial period before becoming subject to periodic adjustments. After that initial period, the rate can move up or down based on the terms of the loan and changes in the applicable market index.
The potential advantage is a lower initial interest rate compared with some fixed-rate mortgages, which may make an ARM appealing if you expect to move, refinance, or otherwise change your financing plans before the adjustment period begins.
The trade-off is less certainty in the years ahead. Your interest rate and monthly payment may increase after the initial fixed period, subject to the limits and terms of your loan.
Understanding the initial fixed period, adjustment frequency, rate caps, and other loan terms is important before choosing an ARM. We'll help you understand how the numbers work so you can decide whether the flexibility is worth it for your situation.
