Adjustable Rate Mortgage
Adjustable rate mortgage, or variable rate mortgage, is a mortgage where the interest rate will adjust to match the current market after an initial fixed rate. For example, a 5/1 ARM’s interest rate will start adjusting after a five-year period of a fixed rate.
Pros:
- Payments decline when market rates fall
- Low initial rate, compared to fixed rate
Cons:
- Payments increase when rates rise
- No stability; payments change over time
