What is an adjustable rate mortgage (ARM)?

An adjustable rate mortgage (ARM) is a type of mortgage loan that has an interest rate that can change periodically over time. In Pennsylvania, ARMs are regulated by state mortgage laws. An ARM loan typically has a lower interest rate than a fixed-rate mortgage loan, and a borrower can benefit from this by having a lower monthly payment. With an ARM loan, the interest rate is adjusted periodically based on market interest rates, meaning that the monthly payments may go up or down. The initial fixed rate period usually lasts one to 10 years. After the initial period is over, the interest rate is frequently adjusted every year. The benefit of an ARM loan is that if the interest rates go down, the borrower can take advantage of the lower rate. However, there is also a risk of the interest rate increasing, which could lead to a much higher monthly payment. It is important to understand the terms of an ARM loan before signing any agreement, so that borrowers can be sure that they can afford the payments in the future.

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