ARMs (Adjustable Rate Mortgage) Loan
An ARM is a mortgage with an interest rate that may vary over the term of the loan. The purpose of the interest rate adjustment is primarily to bring the interest rate on the mortgage in line with market rates.
Mortgage holders are protected by a ceiling, or maximum interest rate, which can be reset annually. ARMs typically begin with more attractive rates than fixed rate mortgages — compensating the borrower for the risk of future interest rate fluctuations.
Choosing an ARM may be a good idea if interest rates are decreasing or if you intend to keep the home for less than five years.
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