An adjustable-rate mortgage (ARM) is a loan in which the interest rate may change periodically, usually based upon a pre-determined index. The ARM loan may include an initial fixed-rate period that is typically 3 to 10 years. The interest rate may change (adjust) each year thereafter once the initial fixed period ends.
ARM loans typically feature lower rates and monthly payments than comparable fixed-rate loans during the initial rate period, but rates could increase or decrease once the initial rate expires.
Benefits and Considerations
Conventional ARMs typically feature lower interest rates and APRs during the initial rate period compared to fixed-rate loans, but rates could increase or decrease once the initial rate expires.