Homeownership marks the start of a new chapter in your life. But before you can move into the home of your dreams, you must decide which type of mortgage will work best for your financial goals. One available option is an adjustable-rate mortgage. But what is an adjustable-rate mortgage and how does it benefit future homeowners?
Adjustable-Rate Mortgage Definition
An adjustable-rate mortgage (ARM), also called a variable-rate mortgage or hybrid ARM, is a home loan with an interest rate that adjusts over time based on the market. ARMs typically have a lower initial interest rate than fixed-rate mortgages, so an ARM is a money-saving option if you want the typically lowest possible mortgage rate from the start.
The low initial interest rate won’t last forever, though. Once the initial period ends, your monthly payment can fluctuate periodically, resulting in unpredictable monthly mortgage payments that are harder to factor into your budget.
Taking time upfront to understand how ARM loans work can help prepare you if your rate starts to climb.
