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Adjustable-rate mortgages: How do they work?

Adjustable-rate mortgages could change every year that you have it.

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Whereas a traditional mortgages have fixed-rates.


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Adjustable-rate mortgage (ARM) loans

ARM loans are characterized by a variable interest rate. A variable interest rate means that the rate can shift over the life of the loan.

A standard ARM is 2/28– which means the borrower will pay a fixed rate for the first two years of the loan with a floating rate for the remaining 28.

Interest-only ARMs are another loan option. This type requires borrowers to only pay interest for a certain amount of time. People who qualify usually will pay only interest for somewhere between 3-10 years. After that, they will have to pay back the loan’s principle.

ARMs have been increasingly popular because the rate offered upon approval is typically lower than that of a fixed-rate. Although it may appear cheaper, keep in mind that the rates will change and the current housing market is unpredictable and volatile. Rates are subject to change every six months after your fixed-rate period is over.


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