Adjustable Rate Mortgage Loans(ARM)
Also known as the variable rate mortgage, an ARM is a mortgage in which the interest rate is adjusted periodically based on a pre-selected index. An adjustable rate is based on a margin plus and index. The margin is fixed for the life of the loan. The index will adjust based on the market or economic conditions. As a result, the interest rate on your loan will rise and fall with increases and decreases in overall interest rates. If interest rates rise, you can expect to see an increase in what you pay monthly as well. The ARM often comes with an interest rate cap, which limits the amount by which the interest rate can change. Though they do have the potential to raise your monthly payments, an adjustable-rate-mortgage can make a big difference in lowering your monthly payments too.
