• Ajustable-Rates

    Interest rates charges during the initilal fixed-rate period are generally lower than those on comparable fixed-rate mortgage. Monthly principal and interest payments may increase when the interest rate adjusts. Your monthly principal and interest payments may change every year after the initial fixed period is over.

    Fixed-rate periods

    The most popular adjustable-rate mortgage is the 5/1 ARM:

    • The 5/1 ARM's introductory rate lasts for five years. (That's the "5" in 5/1.)
    • After that, the interest rate can change every year. (That's the "1" in 5/1.)

    Some lenders offer 3/1 ARMs, 7/1 ARMs and 10/1 ARMs.

     

    Adjustable-rate mortgages
    Benefits Drawbacks
    • Generally, the initial interest rate is lower than on a comparable fixed-rate mortgage.
    • After the fixed-rate period ends, the interest rate can go lower, so monthly payments can fall, too.
    • After the fixed-rate period ends, the interest rate can rise, so monthly payments can go up, too.
    • Interest rates are unpredictable, so you can't predict what your payments will be in the future.