Adjustable

An adjustable rate mortgage is a mortgage with an interest rate that changes over time based on an index. There are many types of adjustable rate mortgages (ARMs). Generally speaking, the perception is that over an extended period of time ARM loans will have lower interest expenses than fixed rate loans. To get this benefit you must be willing to live with both changes up and down in your interest rate and your payment. If you can live with the uncertainty, then there is a good chance that you can save on your interest expense.

ARMs have varying terms of adjustability and are available for both conventional and low down payment FHA loans.

ARMs have always attracted buyers who expect to be in the house for only a few years. For example the interest rate on a 5/1 ARM is set for the first five years and is then adjusted annually thereafter. If you know you are going to stay in the home for no longer than five years, reaping the benefits of the low rate the first five years makes sense.