Adjustable-rate Mortgage (ARM)
An adjustable-rate mortgage (ARM) is a type of mortgage loan in which the interest rate is periodically adjusted based on an index. ARMs are typically offered with a fixed rate for a certain period of time, after which the rate is adjusted periodically. ARMs are popular because they offer lower initial interest rates than fixed-rate mortgages, allowing borrowers to save money in the short term. However, ARMs can be risky because the interest rate can increase significantly over time, resulting in higher monthly payments.
History of Adjustable-rate Mortgages
Adjustable-rate mortgages have been around since the early 1980s. They were initially developed as a way to offer borrowers lower interest rates than fixed-rate mortgages. ARMs were popular during the housing boom of the early 2000s, when interest rates were at historic lows. However, when the housing market crashed in 2008, many borrowers found themselves in a difficult situation due to the increasing interest rates on their ARMs.
Comparison of ARM vs. Fixed-rate Mortgages
| Type of Mortgage | Interest Rate | Monthly Payment |
|---|---|---|
| ARM | Adjustable | Adjustable |
| Fixed-rate | Fixed | Fixed |
Summary
Adjustable-rate mortgages offer borrowers lower initial interest rates than fixed-rate mortgages, but the interest rate can increase significantly over time. ARMs have been around since the early 1980s and were popular during the housing boom of the early 2000s. For more information about adjustable-rate mortgages, visit websites such as Bankrate.com, TheMortgageReports.com, and NerdWallet.com.
See Also
- Fixed-rate Mortgage
- Interest Rate
- Mortgage Loan
- Mortgage Refinancing
- Mortgage Insurance
- Mortgage Broker
- Mortgage Calculator
- Mortgage Rate Lock
- Mortgage Servicing
- Mortgage-backed Security
