Adjustable Rate

Adjustable rate mortgage loans (ARMs) have interest rates that are fixed for specified time periods.  When ARMs are first originated, the interest rates are usually lower than they would be for 30-year fixed rate mortgage loans.
 
Most commonly, buyers get ARMs and then refinance them when interest rates decline, or the fixed time periods end.  Why? Because while ARMs initially provide buyers with lower interest rates, they can change throughout the lives of the loans.  Other than for plans to refinance in the future, ARMs might be chosen because buyers don’t plan on living in their homes beyond the fixed rate periods.
 
So how does this fixed rate time period work before the interest rate adjusts?  Typically, ARM interest rates are fixed for 3, 5, 7, or 10 years and then, normally, adjust every 6 months or 1 year thereafter.  They can either decrease or increase depending upon financial market conditions when the adjustments are scheduled to occur.