An adjustable-rate mortgage (ARM) is a home loan where the interest rate varies over time, unlike a fixed-rate mortgage. Initially, the interest rate is fixed for a specific period, such as 3, 5, 7, or 10 years, and is typically lower than that of a fixed-rate mortgage. After this initial phase, the interest rate adjusts periodically based on market conditions. There are various ARM types, identified by a pair of numbers indicating the fixed duration and subsequent adjustment frequency. Understanding these options is crucial for selecting the appropriate financing based on financial goals.
An adjustable-rate mortgage (ARM) is a type of home loan where the interest rate can change over time, starting with a lower introductory rate.
ARM loans have two phases: an initial fixed-rate period, which typically lasts 3 to 10 years, and an adjustment period where the rate can adjust annually based on an index.
ARM loans come in different structures, often identified by two numbers (like 5/1 or 7/6), describing the fixed period and adjustment frequency.
Understanding the types of ARMs can help you choose the right one for your financial goals, such as the common 5/1 ARM, which is a popular option.
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