Explore Adjustable-Rate Mortgage

Adjustable-Rate Mortgage

The Adjustable-Rate Mortgage (ARM) offers an initial fixed interest rate for a specific period, followed by rate adjustments based on prevailing market conditions. This option provides lower initial payments and can be beneficial for those planning to move or refinance before the rate adjustments.

Best for:
Individuals, Couples, Families
Property type:
Single Family Home
Multi-Family Home
Down payment:
from 3.5%
Loan Term:
Rate type:
Adjustable Rate
Loan Limits:

Key Benefits

Lower Initial Rates
Benefit from a lower initial interest rate compared to fixed-rate mortgages.
Potential for Lower Payments
Experience lower initial monthly payments during the fixed-rate period.
Rate Adjustments
Prepare for potential rate adjustments after the initial fixed-rate period.
Ideal for borrowers who plan to move or refinance before rate adjustments occur.
Risk and Rewards
Offers potential savings initially, but monthly payments could increase if rates rise during the adjustable period.
Commonly asked questions about Adjustable-Rate Mortgage

An Adjustable-Rate Loan is a mortgage with an interest rate that can change periodically based on market conditions after an initial fixed period.

Borrowers who anticipate changes in their financial situation or plan to move or refinance within a few years may find this option attractive.

The initial fixed period can vary but is typically 3, 5, 7, or 10 years, during which the interest rate remains stable.

The interest rate can adjust annually after the initial fixed period, subject to the terms of the loan agreement.

Yes, most Adjustable-Rate Loans have annual and lifetime caps on how much the interest rate can increase or decrease.

The loan agreement will specify the index used, such as the U.S. Prime Rate or the London Interbank Offered Rate (LIBOR).

Some lenders offer options to convert to a fixed rate, but it's essential to understand the terms and any associated costs.

Consider your financial goals, risk tolerance, and how long you plan to stay in the home when evaluating this option.

In the worst case, if interest rates rise significantly, your monthly payments could increase, impacting your budget.

Yes, options like FHA, VA, and USDA loans also offer Adjustable-Rate programs.

The initial interest rate cap limits how much the rate can increase after the fixed period ends.

Check with your lender, as some Adjustable-Rate Loans may have prepayment penalties or restrictions on extra payments.

Collect loan estimates and consider factors like the initial fixed period, index, margin, caps, and overall terms.

You can sell your home before the initial fixed period, but consider potential rate adjustments and prepayment penalties.

Yes, refinancing to a fixed-rate mortgage is an option if it aligns with your financial goals and circumstances.