Get the flexibility you need with an Adjustable Rate Mortgage (ARM). With an ARM, you can enjoy a lower initial interest rate that adjusts over time, giving you the ability to save money and manage your budget. Plus, you can choose from a variety of terms to fit your needs. Get the best of both worlds with an ARM from Home Loans Direct, Inc.!

An adjustable rate mortgage (ARM) is a type of home loan that has an interest rate that can change over time. Unlike a fixed-rate mortgage, where the interest rate remains constant for the life of the loan, the interest rate on an ARM can go up or down periodically.

Here’s how it works:

1. Initial rate: When you first take out an ARM, the interest rate is typically lower than the interest rate on a fixed-rate mortgage. This initial rate is often referred to as the “teaser rate” because it’s designed to entice borrowers to choose the ARM.
2. Adjustment periods: After the initial rate period, the interest rate on the ARM will be adjusted at regular intervals. The adjustment period is the amount of time between rate changes. For example, an ARM might have an adjustment period of one year, which means the interest rate would change every year.
3. Index and margin: The new interest rate is determined by adding a margin to an index rate. The index is typically a published financial benchmark such as the Prime Rate or the London Interbank Offered Rate (LIBOR). The margin is a fixed percentage that is added to the index rate to determine the new interest rate. For example, if the index rate is 3% and the margin is 2%, the new interest rate would be 5%.
4. Caps: To protect borrowers from large swings in interest rates, most ARMs have caps on how much the interest rate can change at each adjustment period and over the life of the loan. There are usually two types of caps: a periodic cap, which limits how much the interest rate can change at each adjustment period, and a lifetime cap, which limits how much the interest rate can increase over the life of the loan.
5. Payment changes: When the interest rate on an ARM changes, the monthly payment will also change. If the interest rate goes up, the monthly payment will increase. If the interest rate goes down, the monthly payment will decrease.

Adjustable rate mortgages can be a good choice for borrowers who expect to sell their home or refinance the mortgage before the initial rate period ends. They can also be a good choice for borrowers who expect their income to increase in the future and can afford potentially higher monthly payments. However, borrowers should be aware of the risks associated with ARMs, such as the possibility of significantly higher monthly payments if interest rates increase.