Adjustable Rate Mortgages
An Adjustable Rate Mortgage (ARM) typically offers a lower initial interest rate than a fixed-rate mortgage. The interest rate is fixed for an initial time period; after the initial period, ARMs adjust up or down periodically, depending on how interest rates have moved since the loan was taken out and according to the annual and lifetime caps (maximums) and the floor (minimum) as set forth in the specific loan terms.
An ARM may be right for you if you plan to stay in your home for a short period of time, or if you want to qualify for a larger mortgage amount because you expect your income to go up over time. Terms are usually three, five, seven or ten years, meaning they are the rate is fixed for that period of time, and then your payment can adjust up or down annually thereafter depending on market conditions.