Adjustable Rate Loans

 

5/1 ARM • 7/1 ARM • 10/1 ARM

An adjustable rate mortgage (ARM) is a mortgage loan where the interest rate on the note is periodically adjusted based on a variety of indexes. Among the most common indexes are the rates on 1-year constant-maturity Treasury (CMT) securities, and the London Interbank Offered Rate (LIBOR).

 

Consequently, payments made by the borrower may change over time with the changing interest rate (alternatively, the term of the loan may change). The borrower benefits if the interest rate falls and loses out if interest rates rise.

 

Advantages:

• Lower initial monthly payment
• Lower payment over a shorter period of time
• Rates and payments may go down if rates improve
• May qualify for higher loan amounts

 

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