Adjustable-Rate Mortgages (ARM) Offer Flexibility

An adjustable-rate mortgage has a variable interest rate that may change throughout the life of the loan, but usually comes with an attractive and low initial rate for the first three to five years. An ARM might be the right choice for you if you are planning to sell the home and move within five years.

How Does an ARM Work?

In most cases, an ARM offers the home buyer an initial interest rate that is lower, but only for a certain period of time, usually three to five years, sometimes longer. After this initial time period ends, the ARM will reset, and adjust up or down in line with the movement of an “index” (major interest rate). After this movement occurs, the amount of interest you pay each month can go up or down.

Should I Look at an ARM?

For some borrowers, an adjustable-rate home loan is right in line with the financial goals they have set for themselves, especially home buyers who think they will move during the initial period of the loan. Customers who choose an ARM are usually:

  • At an income level that can handle the maximum rate and monthly payment
  • Expect a consistent and steady upward movement in their careers and paycheck
  • Carry very little debt
  • Interested in short-term ownership

There are some protections in place for borrowers who choose to go with an ARM. These home loans have an adjustment cap and a lifetime cap, limiting the amount that an interest rate can adjust in one adjustment period and over the term of the loan. There are also a series of disclosures that the lender must make, such as maximum interest rate and payment. You should go over all of this information with your loan officer and carefully consider how it applies to your own situation before you decide.

Contact a Mutual of Omaha Mortgage home loan expert today to learn more.

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