An adjustable rate mortgage (ARM) is a flexible alternative to a conventional . While fixed rates stay the same for the life of the loan, ARM rates can change at arranged intervals-typically beginning lower than repaired rates, which can be appealing to certain homebuyers. In this article, we'll describe how ARMs work, highlight their prospective benefits, and assist you identify whether an ARM might be a great fit for your financial goals and timeline.

What Is an Adjustable Rate Mortgage (ARM)?

An adjustable rate mortgage (ARM) is a mortgage with a rate of interest that can change in time based upon market conditions. It starts with a fixed-rate period, generally 3, 5, 7, or 10 years, followed by scheduled rate modifications.

The introductory rate is often lower than an equivalent fixed-rate mortgage, making ARM home loan rates attractive to purchasers who prepare to move or re-finance before the modification period begins.

After the fixed term, the rate adjusts-usually every 6 months or annually-based on a benchmark index plus a margin set by the lending institution. If rate of interest decrease, your monthly payment may decrease