Adjustable-Rate
Mortgage (ARM):
What It Is and
Different Types
What Is an Adjustable-Rate Mortgage (ARM)?
ARM fundamentally refers to a home loan with a variable rate of interest. With an ARM, the
initial interest rate is fixed for a specific period. After that, the interest rate applied on the
outstanding balance resets periodically, at yearly or even monthly intervals.
How Adjustable-Rate Mortgages (ARMs) Work
An ARM is where the rate fluctuates based on market conditions. This means that you will
benefit from falling rates and also run the risks if the rates increase. There are two different
periods to an ARM – one is fixed and the other is adjusted.
Types of ARMs
An adjustable-rate mortgage comes in three forms.
• Hybrid ARM offers a mix of fixed and adjustable-rate period.
• Interest-Only ARM means only paying interest on the mortgage for a specific time-frame.
• Payment-Option ARM comes with several payment options.
Advantages and Disadvantages of ARMs
An adjustable-rate mortgage comes with many benefits and drawbacks.
• The most obvious advantage is that a low rate will save you money.
• The most obvious disadvantage of an ARM is that the interest rate will change.
Is an ARM Right for You?
An ARM can be a smart financial choice if you expect to keep the loan for a limited period of
time and will be able to handle any rate increases in the meantime. An ARM is perfect for;
• Folks who intend to hold the loan for a short period of time
• People who expect to see a positive change in their income
• Individuals who can and will pay off the mortgage within a short timeframe
Thank You
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