Adjustable Rate Mortgage (ARM Mortgage)
An Adjustable Rate Mortgage is a mortgage loan where the interest rate on the note is periodically adjusted based on a variety of indices. Among the most common indices, are the 1 year Constant Maturity Treasury (CMT) and the London Interbank Offered Rate (LIBOR). To determine if an Adjustable Rate Mortgage is right for you, consider the pros and cons:
ARM Mortgage Pros
Lower interest rate and monthly payments at inception.
- A good choice for people who will own their home short-term.
- A good choice for clients with a high tolerance for risk and who believe rates will be lower in the future.
- May provide the temporary help needed to afford a more expensive home.
ARM Loan Cons
Interest rate can increase over time.
- Not a good choice when expected home ownership is long-term.
- Not a good choice for clients with a low tolerance for risk.
- Not a good choice if the client believes rates will be significantly higher after start period and the client expects to own the property at that time.