There Are Various Types Of ARM S Available To Consumers

Category: Finance.

An adjustable rate mortgage( also known as ARM) differs from a fixed rate mortgage in two very important ways, and we will explore those in this article.

The rate that triggers all of this movement is usually the Fed Prime Rate. Adjustable rate mortgages differ from fixed rate mortgages in that the interest rate as well as the monthly payment will move up and down as market interest rates fluctuate. Most adjustable mortgages have an initial fixed- rate period during which the rate does not change. Home shoppers should understand that, adjustable rates start, in most cases low. This is followed by a much longer period during which the rate changes at preset intervals. In fact, they are often much lower than what is offered through fixed rate programs. This is normal and home shoppers should not be too leery of this tactic, what they should be careful about, are the future, however adjustments to the loan.

This only makes sense because the lenders who offer adjustable rate loans have to have something to entice you into taking the ARM or you would simply go with the fixed rate. For many ARM loans, the initial fixed- rate period can be anywhere from six months long to ten years long. Another popular ARM is called the 5/ 1 ARM, which has an initial fixed- rate period of five years, and then the interest rate is adjusted yearly after that. The most common, is the one, however- year ARM, which will have the first adjustment after one year. Mortgages that combine a lengthy fixed period with an lengthier adjustable period are known as hybrids. This means that the monthly payments will change as well. Other hybrid ARM s are the 3/ 1, the 7/ 1, and the 10/ Home shoppers must understand that once the fixed- rate time period is over( no matter how long or short it may be) the interest rate on the loan will change.

In some cases, and depending on the type of loan, the change in monthly payment can be very substantial. Adjustable mortgages do come with caps. Home loan borrowers do have some protection from extreme changes. These caps limit the amount by which ARM rates and payments can adjust. Sub- prime lenders can add many different types of fees and can vary their interest rates more than traditional loans are allowed. This may not be true if you are in sub- prime loan position. There are various types of ARM s available to consumers.

There are others types of ARM loans that allow borrowers to make interest- only payments for a certain length of time. Some ARM s allow for a conversion that lets consumers switch from the ARM to a fixed rate for a fee. This helps to keep the first payments low. You can also speak with knowledgeable real estate agents and lenders to get answers to those questions you may have about adjustable rate mortgages. Because there are so many types of ARM s you should spend some time looking into them in order to find the one that best fits your needs.