Key Features about Adjustable Rate Mortgage Loans
Overview of an Adjustable Rate Mortgage (ARM)
What is an adjustable rate mortgage? This type of mortgage has a “floating” interest rate that changes according to specific criteria. The initial interest rates on adjustable rate mortgages are usually fixed for a specific period of time. After the “introductory” period the rate is adjusted periodically—quite often this is on a monthly basis. The borrower will pay an interest rate based on a benchmark (usually the prime rate) plus an additional amount. This is called an ARM margin.
Adjustable rate mortgage loans are also called variable rate or floating rate mortgages.
The Best Candidates for ARMs
Not everyone is a good candidate for an adjustable interest rate mortgage. ARMs are best suited for those in the following situations: