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Adjustable Mortgage Rates (ARMs) provide lower rates during an initial period (often 1-7 years) on your home loan. Interest rates on the mortgage adjust with interest rates in the marketplace (represented by a specific index). This is important because the interest rates, and your monthly payments, are periodically adjusted as the index changes. What this means is as the interest rate rises, your monthly payment rises. Additionally, your payments fall as interest rates fall.
Typically, caps are put in place to protect the borrower from drastic increases in the interest rate.
Best If You:
- Are planning to move in a few years
- Want a lower initial rate
- Expect their income to rise over time
- Lower initial rates
- May allow borrowers to qualify for a larger loan
- Caps provide security against rapid rate increases
- Choose 1, 3, 5, 7 or 10 years at a fixed rate prior to first adjustment
- 30-year terms