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Updated on
March 16, 2024

Adjustable Rate Mortgage

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Commonly known as an ARM, is a type of mortgage that has an interest rate that adjusts periodically based on changes in a financial index. The interest rate may go up or down, affecting the borrower's monthly mortgage payments. ARMs are typically offered with a fixed rate for an initial period, after which the rate adjusts regularly.

What is an ARM?

An ARM is a mortgage that has an interest rate that can change over time. The interest rate is typically fixed for a set period, such as five or seven years, and then adjusts periodically based on a predetermined index, such as the prime rate or the London Interbank Offered Rate (LIBOR). The adjustment can result in a higher or lower interest rate, which can affect the monthly mortgage payments.

How does an ARM work?

An ARM has several key features that distinguish it from a traditional fixed-rate mortgage:

Advantages of ARMs for real estate investors

ARMS can offer several advantages to real estate investors, including:

Disadvantages of ARMs for real estate investors

ARMS can also have some disadvantages for real estate investors, including:

An adjustable-rate mortgage is a type of mortgage in which the interest rate can change over time.

ARMs can offer lower initial payments and greater flexibility for real estate investors but also come with uncertainties and risks. Investors should carefully consider the pros and cons of an ARM and evaluate their financial situation before deciding whether this type of mortgage is right for them.

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