Adjustable Rate Mortgages (ARMs) are home loans that have interest rates that can ﬂuctuate over the life of the loan. This means the monthly payment can vary throughout the life of the loan.
ARMs are expressed using two numbers, such as 5/1 or 7/1. The first number indicates the number of years that the initial interest rate is fixed, while the second number indicates the number of years that the rate can adjust after the initial fixed rate period.
For example, with a 5/1 ARM, the initial interest rate will be fixed for the ﬁrst 5 years of the loan. After these 5 years, the rate can adjust every year.
Reasons To ARM Loan
ARMs are ideal if you plan to own your home for less than 10 years.
ARM interest rates are usually lower than 30-year fixed rates.
They can reduce your monthly payments significantly.
Greater savings are achieved if interest rates decline.
Caps on ARMs offer extra protection against volatile market conditions.
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