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An adjustable rate mortgage (ARM) is a versatile alternative to a conventional fixed-rate loan. While repaired rates remain the same for the life of the loan, ARM rates can alter at scheduled intervals-typically beginning lower than repaired rates, which can be interesting specific property buyers. In this article, we'll describe how ARMs work, highlight their prospective benefits, and help you determine whether an ARM could be a good suitable for your financial objectives and timeline.
What Is an Adjustable Rate Mortgage (ARM)?
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An adjustable rate mortgage (ARM) is a mortgage with a rate of interest that can alter with time based on market conditions. It starts with a fixed-rate duration, generally 3, 5, 7, or 10 years, followed by arranged rate adjustments.
The introductory rate is typically lower than an equivalent fixed-rate home mortgage, making ARM home mortgage rates attractive to buyers who prepare to move or refinance before the adjustment duration begins.
After the fixed term, the rate adjusts-usually every six months or annually-based on a benchmark index plus a margin set by the lending institution. If rates of interest go down, your regular monthly might reduce
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