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An adjustable rate mortgage (ARM) is a flexible option to a standard fixed-rate loan. While repaired rates remain the same for the life of the loan, ARM rates can alter at scheduled intervals-typically beginning lower than repaired rates, which can be appealing to particular homebuyers. In this article, we'll discuss how ARMs work, highlight their potential advantages, and assist you identify whether an ARM might be an excellent suitable for your financial objectives and timeline.

What Is an Adjustable Rate Mortgage (ARM)?

An adjustable rate home loan (ARM) is a home loan with a rate of interest that can change with time based on market conditions. It starts with a fixed-rate duration, usually 3, 5, 7, or 10 years, followed by scheduled rate modifications.

The introductory rate is frequently lower than a comparable fixed-rate home mortgage, making ARM home loan rates attractive to buyers who plan to move or re-finance before the change duration starts.

After the fixed term, the rate adjusts-usually every six months or annually-based on a benchmark index plus a margin set by the lender. If interest rates go down, your monthly payment may reduce