Definition of ARM
ARM is an acronym that means "Adjustable Rate Mortgage". This is a loan for buying a home that has an interest rate that can be adjusted during the loan period. This type of loan is also known as a variable-rate mortgage.An ARM is an alternative to a fixed-rate mortgage that has a constant interest rate for the entire loan period. ARMs generally have a lower interest rate that a fixed-rate mortgage, so an ARM can be advantageous if you are planning to sell your house before the ARM rate will adjust, typically after 5 years.
The disadvantage of an ARM is that the interest rate may be adjusted up, resulting in higher mortgage payments.
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