As the name suggests, the adjustable rate mortgage changes its home mortgage loan rates throughout the term of the loan. As the home mortgage loan rate changes, so do the payment amounts. However, most ARM loans contain what is called a cap, or a restriction on the value of the increase in the payment amount and home mortgage loan rate or the decrease.
Because the home mortgage loan rates on these types of loans are constantly changing, the home mortgage loan rates are usually lower than a standard, fixed rate loan. However, you could end up paying more or less for the life of the loan, depending on how often the home mortgage loan rate fluctuates and how high or low the home mortgage loan rates fluctuate. There is a home mortgage loan rate uncertainty in these loans, which can definitely add an element of home mortgage loan rate risk to your pocketbook.
In an ARM contract, it should state to you exactly what the highest home mortgage loan rate that they can charge you is. That way, you can calculate whether the low introductory home mortgage loan rate will be worth it in the long home mortgage loan rate run.
ARMs can be obtained from the FHA and most mortgage lenders. However, the VA does not provide adjustable rate mortgage loans.
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Reference text: Mortgage Loans: What’s Right for You?, by James E. Bridges with Deborah J. Bridges. Copyright 1989, Published by Betterway Publications, Inc., Crozet, VA
