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Adjustable Rate Mortgage (ARM)

Adjustable Rate Mortgage (ARM)

What is Adjustable Rate Mortgage?

An Adjustable Rate Mortgage (ARM) is a type of mortgage where interest can change over time. There are two portions of an ARM:

  • Fixed period: This is the period where the interest rate doesn't change and is fixed. The period can be 5, 7, or 10 years of the loan.
  • Adjustment period: This is the period where the interest can vary and adjust higher based on established criteria.

ARMs usually have a promotional rate so the interest can seem lower than other mortgage options. Depending on your situation, it may make sense to refinance the adjustable rate mortgage into a fixed rate mortgage right before the promotional rate ends.

  • The benefit of an ARM is that, during the fixed period, the interest payments would be lower.
  • The risk of an ARM is the opposite -- the adjustment period can result in a high interest payment.

Similar to Fixed rate mortgages, borrowers can get a maximum of 10 Fannie/Freddie mortgages.

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