A.R.M. Loans

Adjustable-Rate Mortgage (ARM) - A mortgage loan that allows the lender to adjust the interest rate in accordance with a specified index periodically and as agreed by the lender and borrower at the inception of the loan. Also referred to as a variable rate mortgage (VRM).

Convertible ARM - A type of adjustable rate mortgage that includes an option for the borrower to change the mortgage to a fixed-rate mortgage in the early years of the mortgage term.

Disadvantage
  • Re-amortization of the the payment can result in a shocking increase in the payment.
  • Increasing interest rates could cause monthly payment increases before anticipated.
Advantage
  • Low initial payment.
  • This may still be a good option for borrowers who expect to sell the property in less than 5 years.