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Mortgage - Adjustable Rate
Unlike a fixed-rate mortgage where the interest rate stays the same during the life of the loan, an adjustable rate mortgage's (ARM) interest rate changes periodically, usually in relation to an index, and payments may go up or down accordingly.
Lenders generally charge lower initial interest rates for ARMs than for fixed-rate mortgages. This makes the ARM easier on your pocketbook at first than a fixed-rate mortgage for the same amount. It also means that you might qualify for a larger loan because lenders sometimes make the decision about whether to extend a loan on the basis of your current income and the first year’s payments. Moreover, your ARM could be less expensive over a long period than a fixed-rate mortgage--for example, if interest rates remain steady or move lower. Read more...
Consumer's Guide to Adjustable Rate Mortgages (ARMS) (Federal Reserve Board)
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