Adjustable Rate Mortgages

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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:

  • Are fully aware their interest rate may increase after the initial period
  • Expect regular increases in their income over the next few years
  • Want a lower initial interest rate and mortgage payment
  • Have no plans to hold onto the property for the full term of the mortgage

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Features of an Adjustable Rate Mortgage

There are several good reasons a person might want to apply for a bad credit mortgage refinance.

  • The interest rate and monthly payment remain consistent for a specific period of time—usually 3, 5, 7 or 10 years—and then is adjusted (usually annually)
  • Loans may be available for longer terms depending on the lender
  • Individual lenders may be able to add additional features
  • Withdraw from your participation in an adjustable rate mortgage if interest rates have increased
  • Lowering the monthly mortgage payment
  • Refinance to consolidate debt and thus spend less on other debt

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