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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
Have no plans to hold onto the property for the full term of the mortgage
Expect regular increases in their income over the next few years
Want a lower initial interest rate and mortgage payment
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