Adjustable Rate Mortgage

Adjustable Rate Mortgage

Adjustable Rate Mortgages or ARMs is a type of mortgage that is offered to people in certain situations. This includes a set of terms and plans so that you can choose the right one that suits you the best when you are in the process of buying a home or refinancing your existing one. Adjustable rate mortgages offer flexibility which changes throughout the term of your mortgage. This is actually dependent on the changing rates as well as the guidelines and terms set by your lender.


What happens is that it starts at a lower rate and then it changes during the term of your loan. If this is something that you are considering, there are factors that you have to take a look at.


This type of mortgage is offered to people who want to have a lower interest rate in the beginning compared to having a fixed rate all throughout. This means that the lenders can offer a lower rate to those who cannot ordinarily afford it. This rate will stay at a preset date and may change afterwards. How long will it stay the same? This will depend on the loan itself. It can be a month or a year. Consider how long you would want to keep your home.


The other factor to consider is the index. Indexes are tied to the interest rate. This will help determine the adjusted rate of the mortgage. Indexes can come from different sources like Cost of Savings Index or the Cost of Deposit Index.


Indexes work through a margin and this margin will determine your interest rate after our fixed rate period ends. This will vary depending on the lender and the index you use. The margin will give you an approximate percentage of the adjustable rate that you have to pay.