An ARM begins with a fixed introductory rate for a set number of years (for example 5, 7 or 10), then adjusts periodically based on a market index. If you expect to sell or refinance before the fixed period ends, the lower starting payment can be an advantage.
Highlights
- Lower initial rate than many fixed loans
- Fixed for an introductory period
- Rate caps limit how far it can move
- Good fit for shorter time horizons
Keep in mind
- Payment can rise after the introductory period
- Harder to budget long term than a fixed rate
Who it suits
Buyers who expect to move or refinance within the introductory period and are comfortable with some uncertainty.
Eligibility, rates and terms vary by borrower, property and state.