What are Adjustable Rate Mortgage or ARM? ARM is a mortgage loan program that has an initial fixed interest rate period which than periodically adjusts based on a specific index. The benefit of an Adjustable Rate Mortgage is it offers a lower initial rate. This could be beneficial for the consumer who is planning to move or pay off their mortgage loan quickly or perhaps planning to sell their home/commercial property within a few years. Adjustable Rate Mortgage could also be risky. Your monthly mortgage payment can go up significantly with no prior notice. The fluctuation is in no way in your control can be a shocking diffrence. However, ARM programs could also potentially save you thousands of dollars.
So how does ARM work? When you take out an ARM, your initial rate, also known as teaser or discount rate, is fixed for a period of time. The fixed period can typically be anywhere between 3 to 10 years. After the initial fixed period, the interest rate can periodically adjust up or down depending on a specific financial index chosen by your lender. Adjustable Rate Mortgage is not always the right program for everyone and many people prefer fixed rate mortgage over ARM because they know that their monthly mortgage payment will never change for the entire term of their loan. On the other hand, Adjustable Rate Mortgage can save you significant amount of money because of the lower initial interest rate. This only applies if you are not planning to own that property for a long time or are expecting to pay off the loan quickly due to a job promotion, inheritance etc.
Please talk to one of MortgageLA’s loan officers to learn more about Adjustable Rate Mortgage programs.