Adjustable Rate Mortgage

An interest rate that is fixed for an initial period, then adjusts later.

 

An adjustable rate mortgage (ARM) is a loan with an interest rate that can vary over the life of the loan. Most ARMs start with a fixed rate for a period of time (usually five, seven or ten years) and then adjusts every year thereafter. A designation such as “5/1 ARM” means the initial rate is fixed for the first five years and then adjusts every year thereafter based on the market interest rate. Once an ARM starts to adjust (after the initial period), the amount of the adjustment, up or down, will depend on the current market rate based on a published index (such as the U.S. Treasury yield) known as the “Index” plus a “Margin.” The advantage of an ARM vs. a fixed rate loan is that the initial ARM rate is often lower than a comparable fixed rate mortgage. Part of the consideration in deciding whether to use an ARM is whether the initial rate benefit is worth the potential risk of a higher rate in subsequent years. All ARMs have “caps” that limit the amount that the interest rate can change on each adjustment and over the life of the loan.

 

 

"The process was very pleasant and easy to understand. Everyone was very patient with me, and they explained every step. I absolutely love Enterprise Bank & Trust - they have truly made a huge difference in my quality of life."

- Ms. P.