ADJUSTABLE RATE LOANS
An adjustable rate loans and mortgage (ARM) is a mortgage
for which the interest rate is not fixed, but changes during
the life of the loan in line with movements in an index rate.
Such loans are also referred to as adjustable mortgage loans
(AMLs) or variable-rate mortgages (VRMs). Lenders generally
charge lower initial interest rates for ARMs than for fixed-rate
mortgages. The lower rate may provide you with lower cash
outlays in the first year of the loan and in the years thereafter
should rates remain relatively stable or decrease. Additionally,
you may be able to qualify for a greater amount under an ARM
program than a fixed rate program. Rates have decreased in
recent years, and many adjustable rate holders have been net
gainers. Nevertheless, interest rates may increase, leading
to higher monthly payments in the future. You face a trade-off;
you obtain a lower rate with an ARM in exchange for assuming
more risk.
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