Adjustable rate mortgage, also known as ARM, is a mortgage with a variable interest rate for the life of the loan - which means the interest on this loan is changing and is not fixed. This is as opposed to a regular fixed-interest-rate mortgage (which has a set interest rate that does not change).
Adjustable rate mortgages usually have a very low initial interest rate, but it gets a lot higher as time goes on; Depending of course on the economic situation - which straightly affects the interest rate, in your favor or against it. In ARMs, there is a period in the beginning where the Mortgage Interest Rates are fixed - the lenders must leave it at this rate for this period,that is determined in advance. This initial period can last from a few months to a few years.
An adjustable mortgage may work out for you if you're planning on holding the property for a period shorter than this initial period, or if the interest rates don't seem to rise sharply after this period ends.
Adjustable rate mortgages are Mortgage Interest Rates that would usually have a lower interest rate than their fixed rate parallel mortgages in the beginning - which is the reason why they suit the person who would like to buy a house and resell it ("flipping real estate"). Because he only plans to only hold the house for a short period of time, the low introductory interest rate works perfectly for him if he manages to sell the house before the rates change. A real estate flipper must also make sure the economy is in doing well, and that the value of the house he's investing in is rising year after year.
If you are planning on paying your mortgage in a short time with big monthly payments an adjustable rate mortgage is the way to go - you'll enjoy low interest on your loan as long as you are in the fixed-rate initial period. On the other side, if you are spreading the payments over 10-20 years, you might want to pick a regular, fixed-rate mortgage. The reason is, when ARM's rates go higher (at the end of the initial fixed-rate period), they usually go higher than regular mortgage's rates, and you end up losing thousands of dollars every year on your mortgage payments.
Between all the different types of mortgages including fixed interest rate mortgages, adjustable rate mortgages, Interest only mortgages, and home equity loans, finding the right fit for you can be a difficult task.
Author Resource:
A great resource to help you in your continued research on Mortgage Interest Rates is ApproveAll.com They offer completely free and unbiased information about Adjustable Rate Mortgage options, Mortgage Loans and a lot more.
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