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What is an Adjustable Rate Mortgage?

The nature of an adjustable-rate mortgage allows buyers and those looking to refinance to, in a sense, ‘play the odds’ on future interest rates. ARM loans come attached with a fixed-rate during a preliminary duration of time. This can range from 5, 7 or 10 years, depending on your unique mortgage needs. After that, your loan interest rate will be dictated by whatever the going rate is for your loan. For example: You lock an ARM at 5 years at a 3.75% interest rate. After that 5 year period, interest rates on your loan product can rise, fall or stay the same. The latter is rarely the case unless a massive shift in the national economic picture rattles the bond market – of which interest rates are closely tied.

How does an Adjustable Rate Mortgage work?

If you don’t see yourself in the same property for more than 10 years, then an ARM could be right for you. This could be pre-determined by your job or other foreseeable life changes that will cause your family to relocate. Or maybe you have a really close connection to the economy and interest rate forecasts. You know, beyond a reasonable doubt, that interest rates on your loan product will be lower 7 years from now. This, in essence, gives you the freedom of choice.

CALL 1-800-24-RATES to speak to a loan specialist at Mutual of Omaha Mortgage today

Adjustable Rate Mortgages vs. Conventional Loans

An adjustable rate mortgage usually chosen because it provides a lower interest rate for a short period of time. ARM's allow you the freedom to keep your home ownership goals fluid without occupying too much time. Compare an ARM mortgage to other loan types and see if it is the right loan for you!

Strengths and weaknesses of Adjustable Rate Mortgages

As we’ve covered above, ARMs provide customers the freedom over the future of your specific loan needs. If you’re intuition proves right, you could be lowering your monthly mortgage payments simply by the nature of your loan agreement.

The other side of the coin is equally true. If interest rates become more unfavorable after your preliminary fixed-rate agreement, then you could be subjected to a higher mortgage payment on the life of your loan.

Speak with one of our Adjustable Rate Specialists to learn more about the pros and cons of an ARM.

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