What is an adjustable-rate mortgage (ARM)?

An ARM is a type of fixed-rate mortgage in the United States, where the interest rate on the loan changes periodically. With this type of loan, different interest rates are set for different periods of time: for example, 1% or 2% could be fixed for one year and then vary with each passing month during that year. As a result, if your interest rate goes up you will pay more in interest every month on your loan than you would with other types of mortgages such as a fixed-rate mortgage or a variable-rate mortgage.

What are some benefits to using an ARM?

• The flexibility afforded by an ARM can be appealing. With an ARM, you can adjust the monthly payments so that they fit your budget and cash flow.

• Assuming you do not make any changes to your home loan in the first few years of your loan, you will pay less for principal than with a traditional fixed-rate mortgage. Eventually, this will help to offset the higher interest rate you are paying on your ARM.

• An ARM could be a good option if interest rates rise during the first few years of your loan.

What are some drawbacks to using an ARM?

• With an ARM, you do not lock in a fixed interest rate on the loan. Instead, you may pay a higher interest rate if interest rates go up.
• In the first few years of your loan, you could pay more than with a traditional fixed-rate mortgage. As a result, it is possible to end up paying more on your loan than if you had chosen to use a traditional fixed-rate mortgage.
• Since repayments do not follow the original schedule for the first few years of your loan, it is possible for your monthly payments to increase during this period, although this is unlikely to happen in most cases.

What are the most important considerations when using an ARM?

• You should only consider using an ARM if you can afford to pay more in interest than you would with a traditional fixed-rate mortgage. This is because it is possible to end up paying more on your loan with an ARM.
• If interest rates go up, you should expect your monthly payments to increase as well. If this happens, you may want to consider whether it would be better to switch to a fixed-rate mortgage. You should also discuss this option with your lender before your loan comes due, since you could end up paying more on your home loan than if you had used a traditional fixed-rate mortgage.
• Consider the length of time you want to tie up the capital that is invested in your home loan. If you do not want to make any changes to the original terms of your loan, then an ARM may be a good option for you. Otherwise, it may make sense for you to think about making some changes or transferring the loan into another type of mortgage.
• One of the main benefits to using an ARM is the flexibility it provides. However, if you are thinking about using an ARM and decide that this type of loan is not right for you, consider whether you could use a fixed-rate mortgage instead or transfer your loan into another type of mortgage to ensure the interest rate does not change during the first few years.

What are some options for switching from an ARM?

• If you think your monthly payments on your home loan are going to increase, consider getting a new home loan before the original one comes due. You could choose to use a fixed-rate mortgage instead of an ARM. A fixed-rate mortgage allows you to have a set interest rate for the life of the loan, so you will pay the same amount each month.
• You could also choose to switch from an ARM to another type of mortgage, such as a variable-rate or fixed-rate mortgage. This will allow you to lock in a set interest rate and pay the same amount each month.
• If you decide that your current home loan is an ARM and would prefer not to make any changes, consider how long you want to keep your home loan before deciding whether it makes sense for you to switch loans or transfer your current home loan into another type of mortgage.

What are some options for making changes to an ARM loan?

• If you have an ARM and interest rates have not gone up, consider switching to a fixed-rate mortgage. This means that your interest rate will be fixed for the life of the loan so you will pay the same amount each month.
• You could also consider making other changes to your home loan, such as extending your loan or taking out a home equity line of credit (HELOC). These types of loans generally come with variable interest rates. However, in the early years of your loan, you will often be paying less in interest than if you had taken out a fixed-rate mortgage.
• If you find that a variable-rate home loan is more suitable for you, consider taking out a new home loan with a variable-rate. This means that the interest rate on your home loan will change from time to time so you pay the same amount each month.

What are some options for transferring an ARM into another type of mortgage?

If you have an ARM and interest rates have not gone up, consider switching to a fixed-rate mortgage. This means that your interest rate will be fixed for the life of the loan so you will pay the same amount each month.

• You could also consider making other changes to your home loan, such as extending your loan or taking out a home equity line of credit (HELOC). These types of loans generally come with variable interest rates. However, in the early years of your loan, you will often be paying less in interest than if you had taken out a fixed-rate mortgage.
• If you find that a variable-rate home loan is more suitable for you, consider taking out a new home loan with a variable-rate. This means that the interest rate on your home loan will change from time to time so you pay the same amount each month.