All you need to know about Adjustable Rate Mortgages

The Adjustable Rate Mortgages (ARMs) were introduced more than 30 years ago when the mortgage interest rates were hovering around 15 percent. Now that rates are creeping higher bit by bit, they are becoming increasingly interesting to many. Best features of an ARM is keeping the rate low for an initial period and after that adjusting the interest rate at an agreed upon rate every six months or on yearly basis. ARM allow the borrower to get bit more loan amounts initially, give the assurance of a low rate for a set period of time and provides a guideline how the rate will be adjusted in the future.

ARM comes in 3/1, 5/1, 7/1 and 10/1 Intermediate. The interest rate is fixed for the initial 3, 5, 7 or 10 year period and adjusted every year after that. Those who are looking to stay in a home for a limited initial period of time, ARM is a great way to get a lower interest rate. When negotiating for an ARM get a better understanding of the interest rate cap, margin, what index is used (Libor or treasury bill), and how often the interest rate will be adjusted.