Adjustable Rate Loan
What Is an Adjustable Rate Mortgage?
An adjustable rate mortgage (ARM) is a mortgage loan that may vary in monthly payment and interest rate depending on a change in an index. Typically, the initial rate is lower compared to a fixed rate mortgage, so for many borrowers, it could make homeownership more affordable. The risk of fluctuating monthly payments may be reduced with annual interest and lifetime interest cap ceilings.
Adjustable Rate Mortgage Qualifications
Eligibility for an adjustable rate mortgage depends on the exact loan product you’ve selected as well as a number of parameters, including your debt-to-income ratio, credit score, income, employment status, and more.
Who Should Get an Adjustable Rate Mortgage?
Adjustable rate mortgages may be a viable option if you:
- Plan to move out of your home during the fixed rate period
- Expect your income to increase in the future
- Need a low monthly payment in the early years
- Can adapt to possible changes in future monthly payments
Pros and Cons of an Adjustable Rate Mortgage
- Lower initial rates
- Lower monthly payments in the early years
- Great for borrowers who are confident in predicting the length of their residency
- Interest rate may fluctuate
- Monthly payments may increase
- Depending on future adjustments, interest costs may exceed the fixed rate option