Adjustable Rate Mortgages

Adjustable Rate Mortgages

Many people these days are turning to adjustable rate mortgages for there initial low interest rates and therefore low monthly payments. An ARM is a mortgage with an interest rate that is linked to an economic index. The interest rate, which directly affects the amount of your payments, is periodically adjusted up or down as the index fluctuates.

Common indexes used by lenders include the activity of one, three, and five-year Treasury securities, but there are many others. Each ARM is linked to a specific index. Make sure to read all about the particular adjustable rate mortgage that you are going to apply for.

Margin is the lender's markup. It is an interest rate that represents their cost of doing business plus the profit they will make on the loan. The margin is added to the index rate to determine your total interest rate. The margin usually stays the same during the life of the loan.

The initial interest rate for an ARM is lower than that of a fixed rate mortgage where the interest rate remains the same during the life of the loan. A lower rate means lower payments, which might help you qualify for a larger loan.