The Adjustable Rate Mortgage (ARM) has become a popular way for Americans to get more immediate bang for their buck when purchasing a home. For a long time ARMs, also known as flexible and variable rate mortgages, have been considered a good option for buyers who are looking to sell their home or refinance in 3 to 5 years. The theory being that the homeowner makes lower payments with little risk of the mortgage payment being adjusted during that short time period.
Because the monthly payment on an ARM is considerably lower than that on a traditional fixed-rate mortgage, a buyer can qualify to purchase more home than they could if they took out a loan with a fixed-rate. For the potential homeowner, this looks like a very attractive proposal.
The primary drawback to an ARM is the fact that if you hold onto the mortgage long enough it is almost certain to go up. Although exact times for periods of adjustment are stated, exactly how much and how many times it will rise is relatively unpredictable. Much of what happens with an ARM depends upon developments in financial markets. If the interest rate on an ARM rises enough, one could end up paying more per month on a...
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