What is an adjustable rate mortgage (ARM)?

An adjustable rate mortgage (ARM) is a mortgage loan in which the interest rate is linked to an economic index and can change periodically over the life of the loan. ARMs are typically offered in North Carolina with initial fixed rates that are lower than the traditional fixed-rate mortgages. After the initial fixed period, the rate becomes variable and is subject to rising and falling market conditions. Advantages of ARMs include lower initial payments, payment flexibility, and the potential for long-term savings. Borrowers with good credit may be able to get an ARM with a lower interest rate than a traditional fixed-rate mortgage. Once the initial period expires, the rate can then be adjusted up or down at preset intervals. This flexibility allows a borrower to make low monthly payments initially and then have the ability to make larger payments later on when circumstances allow. However, ARMs typically come with some risk, as there is no guarantee that interest rates will stay low or increase. If interest rates rise after the initial period ends, borrowers with an ARM may find themselves with a monthly payment that is higher than their budget can handle. Also, if a borrower plans to stay in the loan for the entire term, the long-term savings of an ARM may not be as significant as initially estimated. Thus, it is important for North Carolina borrowers to carefully consider the risks and the long-term implications of an ARM before applying. It is important to compare different options in order to make an informed decision. Mortgage brokers or lenders can provide additional information to help borrowers decide if an ARM is the right loan for their needs.

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What is an adjustable rate mortgage (ARM)?

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