When Should You Consider An Adjustable Rate Mortgage

If you’re buying a house soon, you may be mulling over the idea of getting an adjustable-rate mortgage. Or you were, until you heard the Federal Reserve’s recent decision to raise interest rates a quarter point. That likely put a chill on many homeowners’ desire to have an adjustable-rate mortgage, also known as an ARM.

When you get a mortgage, there are many loan features to consider. One of the key decisions is whether to go with a fixed- or adjustable-rate.

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In a conventional ARM mortgage, the lender selects an index at which the interest rate of the loan will change: for example, one-year or five-year Treasury securities. At an increment of time specified by the lender–generally annually, semi-annually or quarterly–the interest rate will either increase or decrease based on the interest index.

 · If the thought of a sudden rate increase does not deter you, then the lower rates and reduced monthly payments with an adjustable rate loan can be more suitable to your needs, especially if you expect to move before the rates adjust. Should I consider an adjustable rate mortgage in.

How Does An Arm Mortgage Work An Adjustable Rate Mortgage (shortened to ARM) is a mortgage where the interest rate on the mortgage varies.In an ARM, there is an initial period of a fixed rate, then the interest rate changes. When compared to a fixed rate mortgage, an adjustable rate mortgage differs because the interest rate will change over time to match the market.

Fixed vs adjustable rate mortgages One of the first things you have to figure out is whether you should get a fixed-rate or adjustable-rate mortgage. Most people choose the. However, that’s nearly the best-case scenario. Now let’s.

Consider this: The typical mortgage is paid off or refinanced in seven to 10 years. If you have a seven-year window, why pay for 30 years worth of interest-rate stability? Here are some things to think about when considering whether an adjustable-rate mortgage is right for you: Aren’t All ARMs.

First off, you should know that the 5/5 ARM is an adjustable-rate mortgage. However, you get a fixed rate for the first five years of the loan term, just like a 30-year fixed. After that five years, the mortgage experiences its first rate adjustment, either up or down, based on the combination of the margin and the underlying mortgage index.

Should you consider an ARM? If you are interested in an adjustable-rate mortgage for these or other reasons, it’s important to weigh all of the pros and cons with your mortgage lender to.

5/1 Arm Meaning All adjustable-rate mortgages have an overall cap. It would also help to be familiar with these terms in their numerical form, as this is the way in which your lender will illustrate the type of ARM you qualify for. 5/1: The five represents the amount of years the interest rate is fixed. The one indicates that the interest rate will adjust.