Q:
What about an adjustable rate mortgage?
A: An adjustable-rate mortgage (ARM)
means that the interest rate changes over the life of the loan —
according to the terms specified in advance. With ARMs:
The initial interest rate is usually lower than with a fixed-rate
mortgage.
The monthly repayment would also be lower.The interest rate may
be adjusted (up or down) at predetermined times.
The monthly payment will then increase or decrease.
Most ARM programs do offer "rate
cap" protection, which limits the amount the rate can be
increased, both each year and over the life of the loan.
All ARMs are amortized over 30 years.
ARMs are usually priced lower than fixed-rate
mortgages so you can increase your buying power and lower your
initial monthly payments. If interest rates go down, you’ll
enjoy lower payments. Usually an ARM is the best choice for homeowners
who plan to relocate (for example, with their company or the military),
or for those who are purchasing their first home and plan to be
in the property only for three to five years. Remember that, on
average, most people move or refinance within seven years.
