Adjustable Rate Mortgages (ARM) begin with a fixed rate for a specific period of time, typically three to ten years. After the fixed rate period, the interest rate on an ARM will change periodically based on a set margin above the 1 Year Treasury Bill Index or the London Interbank Offered Rate (LIBOR). There are yearly and lifetime caps.
What to consider:
- lower fixed interest rate for specific timeframe
- beneficial if selling property within time frame of fixed rate
- subject to the risk of higher interest rates
- clients often refinance prior the end of the fixed rate period