What Is an ARM and what are the benefits and pitfalls?
With an adjustable rate mortgage (ARM) the interest rate changes periodically, usually in relation to an index, and payments may go up or down accordingly. To determine the interest rate on an ARM, lenders add to the index rate a few percentage points called the margin. The amount of the margin can differ from one lender to another, but it is usually constant over the life of the loan. For Example: if the Index rate is 1 and the margin is 2.75 then your rate would be 3.75%.
