What is an Adjustable Mortgage Rate?
An adjustable-rate mortgage has one major difference from fixed mortgages: Unlike fixed loans, adjustable-rate loans (or ARMs) have interest rates that adjust periodically throughout the life of the loan. These loans are tied to one of several indexes, which in turn cause the interest rate to fluctuate. Though rates typically rise, they can also fall. Adjustable-rate mortgages typically carry lower introductory rates, known as teasers. However, these teaser rates will usually adjust by the first or second anniversary of the loan – and if the borrower is caught unaware, he or she can suffer from sticker shock. It is therefore important to understand the pluses and minuses of ARMs, as well as the caps that protect you from paying too much interest. ARMs typically cannot adjust more than 2 percentage points in a year, nor can they adjust more than 6 percent points during their lifetime. Video: ARM – Adjustable Rate Mortgage Calculation Mortgage rates differ depending on your state of resi
