What is an Adjustable-Rate Mortgage?

If you’re like most people who are buying a home for sale in Tampa Bay, you’re going to need a mortgage loan to do it. As you search for the best rates and the best terms, you’ll have several options available – and one of them may be an adjustable-rate mortgage, or ARM.

But what is an ARM, and how does it work?

What is an Adjustable-Rate Mortgage?

An adjustable-rate mortgage is one in which the interest rate fluctuates. It doesn’t go up and down daily, or even monthly – but after an initial fixed-rate period (typically 5, 7 or 10 years), the interest rate changes annually.

Usually interest rate changes are capped at a certain amount (for example, you won’t go from 3 percent interest to 27 percent interest).

Typically, the initial interest rates (and payments) on an ARM are lower than they are on a fixed-rate mortgage. This makes them attractive for some buyers – especially those who move frequently, expect to make more money within the next few years, or plan to refinance before the loan adjusts to the market.