Adjustable Rate Loans
Adjustable rates are rates that change at pre-specified points based on changes in the market index. Adjustable rates are scary to some people mostly because they don’t understand them. An adjustable rate will have a fixed period and then change at a pre-specified point during the term of the loan. The shorter the fixed period the lower the starting rate (before it adjusts) will be. The fixed period of an adjustable loan can range from as short as 1 month from the date of the closing to 10 years from the date of the closing. Example: If you are planning to move within 5 to 7 years after a purchase or refinance you may want to consider applying for an adjustable rate with a fixed period of 5 or 7 years to take advantage of the lower rate. If you believe you will have to take cash out on the equity in your house for home improvement etc., a few years after you buy a home you may also want to consider an adjustable rate. Or if you just need your payments as low as possible an adjustable rate is definitely what you need. An adjustable rate is written and or described by 2 numbers. The first number describes the fixed period and the second number describes the schedule period of adjustments after the fixed period expires. For example, a 5/1 ARM means that the rate is fixed for 5 years and then the rate adjusts once a year after that. A 5/6 ARM would mean that the rate is fixed for 5 years and then it adjusts every 6 months after that based on the market index at that time.
See our Mortgage Rates section for more details.