An adjustable rate mortgage, also called an ARM, is a type of mortgage that is often obtained through refinancing. This mortgage starts off with a fixed rate of interest and then leads to your interest rate moving up or down, depending on the current market. If you are considering a refi, it is in your best interest to work with a mortgage lender, so you can make an informed decision on whether or not this type of mortgage will benefit you.
An adjustable rate mortgage can help to get you a lesser interest rate than your current mortgage offers. This can allow you to lower your monthly payments. Unfortunately, there is a risk involved. Once your period of fixed rate payment ends, the market can cause your interest rate to go higher, leading to higher payments. You will need to make a decision on whether or not lowering your payments now, is worth the risk.
In an ARM, the interest rate can change once a year or more often. You can lock in your fixed rate for a specified period of time. The ARM may be a five-year, ten-year or thirty-year, depending on your financial needs. Through a refi, you can dramatically lower your payments, so you can hopefully pay down your mortgage loan much faster.
Changes to your interest rate will vary, depending on the type of ARM you have. Each adjustable rate mortgage contains a lifetime limit. Throughout the life of your loan, the amount of your interest cannot go above or below this pre-determined amount. This helps to protect consumers from experiencing extremely high mortgage rates, so their payments are affordable.