ARM Mortgage stands for Adjustible Rate Mortgage.
Rates can adjust yearly, or can be fixed for a certain period of time. A 3/1 ARM
is fixed for 3 years and adjusts yearly after that. A 5/1 ARM is fixed for 5
years. These loan programs can save you thousands on your mortgage as the
interest rate will be lower than a 30-year fixed. Even factoring in the cost to
refinance, you will still save.
There is usually a cap on the adjustment amount. Example; 1% per year for 5
years. If interest rates go up your rate will adjust up 1%. If interest rates
go down, it will adjust down.
Unless there are special circumstances, it is a good ideal to stay away from 1
year ARM's or ARM mortgages that can adjust more than 1% per year.
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