ARMs: Adjustable Rate Mortgages
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ARM or Adjustable Rate Mortgage is a mortgage where the rates are subject to change. The rates on a ARM stays stable for a set period of time, then the rates begin to adjust itself in accordance to the market index. An ARM loan transfers some of the risk to the borrower so the rates will be lower than a fixed rate mortgage. This lower initial rate does adjust though so don’t look at your rate thinking that it will stay there. Some features of ARM (depending on the lender) are Conversions and Prepayment penalties. The conversion is a clause in some agreements which lets the borrower converts from an adjustable rate to a fixed rate if they chose to. Prepayment penalties are an extra fee which is incurred by the borrower if they pay off the ARM earlier than their loan term. ARMs are tricky and can appear to be complicated if you don’t have knowledge of the program. Speak with your loan officer to get a fully detailed explanation of ARMS and what kind of features their programs include.
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