Fixed vs Adjustable-Rate Mortgages: Which One Is Right for You?
ByOlivier
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2. What is a mortgage with an adjustable rate?
After an initial period (such as three, five, seven, or ten years) with a fixed interest rate, an adjustable-rate mortgage (ARM) makes periodic adjustments dependent on the market.
Important characteristics include:
reduced starting rate in contrast to fixed loans
After the predetermined period is over, the rate changes.
The rate is linked to a margin plus a market index.
Caps restrict the amount that the rate can fluctuate annually and during the loan’s term.
The 5/1 ARM, which remains set for five years before adjusting annually, is one well-liked variant.
