An adjustable-rate mortgage (ARM) is a loan that offers a lower initial interest rate than most fixed-rate loans. The trade-off is that the interest rate can change periodically, usually in relation to an index, and the monthly payment will increase or decrease accordingly.
Although the lower payment at the beginning of the loan is an advantage, you should weigh the risk that an increase in interest rates could lead to higher monthly payments in the future. You get a lower initial rate with an ARM in exchange for assuming more risk.
For many people, an ARM is the right mortgage choice, particularly if your income is likely to increase in the future or if you only plan on being in the home for three to five years. Learn more about how an adjustable rate mortgage works.
Whether you are considering purchasing a new home or deciding if it’s the right time to refinance, use our calculators to help you make your decision. Explore our helpful resources to answer many of your mortgage questions, or talk with one of our loan officers to determine the mortgage that’s right for you.