Adjustable Rate Mortgages (ARM)
Adjustable rate mortgages (ARM) are tied to an index which is set by the Federal Reserve. The interest rate changes periodically and according to these payments go up and down.
At each adjustment period the lender adds a margin — a specified number of percentage points. It determines the new interest rate on your mortgage.
If you want to understand how an interest rate can vary, you should ask your lender for a chat of historical rate.
Comparing to fixed rate mortgages, ARMs offer a lower initial rate. In case interest rates remain steady or decrease, over the time they can be less expensive. But your monthly payments can rise according to the rise of interest rates.
If you plan to stay in your house less than three years and believe interest rates to go down — consider adjustable rate mortgages.
Fixed rate mortgage
Option ARMs (flex ARMs)
Hybrid mortgages