Adjustable Rate Mortgages (ARM) may give borrowers the ability to save money on their loan in the short term, with a number of payment options in the future. ARMs provide a lot of flexibility for homebuyers. An ARM is originally fixed at the start of the loan and continues for a predetermined amount of time. The rate on the loan then becomes adjusted on a month by month basis. The rates are tied to indexes such as the London Interbank Offered Rate (LIBOR).
Interest rates are fixed at the origination of the loan. This gives borrowers some time to become comfortable with the new payments before they become adjusted.
Lower housing rates mean lower monthly bills. Think of all of the potential savings.
When interest rates fall, so does your monthly payment.
Not sure how long you want to stay in your new home? ARMs give borrowers more flexibility for moving after only a few years.
Thanks to rate caps, the interest rates on an ARM can only increase so much during any adjustment period.
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