An adjustable rate mortgage (also known as ARM) differs from a fixed rate mortgage in two very important ways, and we will explore those in this article.
Adjustable rate mortgages differ from fixed rate mortgages in that the interest rate as well as the monthly payment will move up and down as market interest rates fluctuate. The rate that triggers all of this movement is usually the Fed Prime Rate.
Most adjustable mortgages have an initial fixed-rate period during which the rate does not change; this is followed by a much longer period during which the rate changes at preset intervals.
Home shoppers should understand that, in most cases, adjustable rates start low. In fact, they are often much lower than what is offered through fixed rate programs. This only makes sense because the lenders who offer adjustable rate loans have to have something to entice you into taking the ARM or you would simply go with the fixed rate. This is normal and home shoppers should not be too leery of this tactic, what they should be careful about, however, are the future adjustments to the loan.
For many ARM loans, the initial fixed-rate period can be anywhere from six...
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