Adjustable Rate Mortgages

If you are buying a house that you don’t plan on keeping for very long then an adjustable rate mortgage might be a good idea. When looking at ARMs, you should make sure that the initial period where your rate is fixed is long enough. Both one-year ARMs and 5/1 Arms (the initial fixed-rate period last five years and the rate begins adjusting each year after that) are standard.

After the fixed-rate period ends, the ARM’s rate goes up and down at the same rate of whatever major index has been decided in the closing documents Some ARMs may be converted to a fixed-rate mortgage for a fee. Your ARM may be assumable; this means that whoever buys you home may qualify to buy your existing mortgage.

There are also interest-only ARMs where you are required to pay only the interest for a certain period of time. However, you can pay whatever you want toward the principal. After the interest only period is over the loan adjusts to the going interest rate and amoritizes faster. This might be a good idea for someone who has a fluctuating monthly income.