Adjustable-Rate Mortgages

An adjustable-rate mortgage (ARM) has an interest rate that changes periodically, typically once or twice a year, based on market conditions. This means the monthly mortgage payment can increase or decrease over time, which can make budgeting and financial planning more challenging.

ARMs often have lower initial interest rates than fixed-rate mortgages, which can make the monthly mortgage payments more affordable for borrowers. This can be a good option for borrowers who expect their income to increase in the near future or who plan to sell their home before the interest rate adjusts.

To limit the risk of monthly mortgage payments increasing too much, ARMs often come with interest rate caps. These caps place a limit on how much the interest rate can increase over the life of the loan.

Because the interest rate can adjust over time, there is a risk that the monthly mortgage payments can increase significantly. This risk can be a concern for borrowers who are on a tight budget or who have limited income stability. Borrowers should carefully consider their financial situation and ability to handle potential payment increases before choosing an ARM.