Adjustable Rate Mortgages

An Adjustable Rate Mortgage, or ARM, has an interest rate that fluctuates and has the ability to change once a year. This type of loan has a low fixed interest rate for a specific period of time (generally, one to five years) before the rate fluctuation begins. During this period the customer may be afforded the option of paying only the interest for the period. Borrowers should be aware that the ARM can become very expensive over time. However the low initial rate is ideal for borrowers who plan to sell their home quickly.

The recent mortgage crisis stemmed mostly from buyers who bought more house than they could afford. Another reason was due to unscrupulous mortgage lenders who placed people in loans they could not afford once the initial rate period ended and the payments began to rise. This led to millions of loans to go into default and eventually the homeowner either filing bankruptcy or worse the home enters foreclosure.