An adjustable rate mortgage, often called ARM, is a mortgage loan program in which the interest rate is adjusted periodically based on an index. The interest rate varies based on one or many indexes. This could be to the one-year treasury bills or to another specific index. You may note that different lenders tie the adjustable rate to different indexes.
If you know your income will be rising or know you will be selling the house in less than five years, ARMs may be a good option for you.
Also, if rates begin to fall, you do not need to refinance in order to see your payments go down; they will automatically be recalculated at the new, lower rates.
Many of the indices that the adjustable rates are typically based on are published in the newspaper. Before going for an adjustable rate mortgage, check where you can find the published adjustments, if there are any types of sources for projections, and where the underlying index on which the adjustable rate is based is posted.
The interest rates can go up or down. Therefore this type of mortgage loan can be a very viable option for people who are not too sensitive to fluctuating financing costs. Shopping for an adjustable rate mortgage can be more difficult than shopping for a fixed rate mortgage.
