Adjustable Rate Mortgage


ARM. A mortgage with an interest rate that may change, usually in response to changes in the Treasury Bill rate or the prime rate. The purpose of the interest rate adjustment is primarily to bring the interest rate on the mortgage in line with market rates. The mortgage holder is protected by a maximum interest rate (called a ceiling), which might be reset annually. ARMs usually start with better rates than fixed rate mortgages, in order to compensate the borrower for the additional risk that future interest rate fluctuations will create.

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When my wife and I decided to buy a home, we knew we would move again in a few years, so we got an adjustable rate mortgage where the rate could change.

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When purchasing a new home, you need to account for the probability of your mortgage changing either higher or lower due to the adjustable rate mortgage.

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The adjustable rate mortgage that I applied for the home I New York was approved and it would start with 5 percent which is in the range of present market rates and increase to a fixed rate of 7.5 percent after 6 years.

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