Simple Definition: Is a mortgage in which the interest rate is adjusted periodically based on a preselected index. Also sometimes known as the re-negotiable rate mortgage, the variable rate mortgage or the Canadian rollover mortgage.
Real estate Adjustable Rate Mortgage, commonly referred to as ARM, is a type of mortgage where the interest rate fluctuates over time. The interest rate is typically fixed for a certain period, usually between one to ten years, and then adjusts periodically based on market conditions.
ARMs can be beneficial for homebuyers who are looking to purchase a property but may not have the finances to afford a fixed-rate mortgage. The initial interest rate for an ARM is typically lower than the fixed rate, making it more affordable for the first few years.
However, it is important to note that the interest rate for an ARM can increase significantly after the initial fixed period, resulting in higher monthly payments. This can be a risk for homeowners who are not prepared for the increase in payments.
ARMs are popular among real estate investors who plan on selling or refinancing their property within the initial fixed period. This allows them to take advantage of the lower interest rate and potentially save money on their mortgage payments.
In conclusion, real estate Adjustable Rate Mortgages can be a viable option for homebuyers and investors, but it is important to fully understand the risks and benefits before committing to this type of mortgage. Consult with a qualified mortgage professional to determine if an ARM is the right choice for your individual financial situation.