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What is an Adjustable Rate Mortgage (ARM)?

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Adjustable rate mortgages (ARMs) are home loans with an initial low fixed rate that then becomes an adjustable rate after the initial term of the loan. Once your rate becomes an adjustable rate, this means if interest rates rise, your monthly payment goes up. Likewise, your payments go down as interest rates fall. An ARM typically comes with an initial fixed low rate for a predetermined period of time.

Using an ARM loan to finance the purchase of your primary dwelling has become a popular move in recent years. In the past, mortgage loan options were much more limited, with most available programs offering only a fixed rate. While it's nice to have a fixed rate, there are sometimes more affordable alternatives, especially if you don’t plan on being in your home for a long period of time.

The Benefits:

  • Lower interest rates and monthly payments.
  • With an initial low rate, you can enjoy low payments for a predetermined period of time and then sell or refinance your home as you see fit.
  • You are not locked in to an interest rate, so if the interest rates go down, so do your monthly payments.
  • You can save more money at the beginning of your loan.

 

 

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