What is an Adjustable Rate Mortgage?
An adjustable rate mortgage, or ARM, starts with a low introductory interest rate for a set period of time, generally five or seven years. The rate, as well as the principal and interest payment, is fixed during that initial period, but after that time the rate adjusts up or down depending on the terms of the loan program and the index that it is tied to.
For example, with a 7/1 ARM the rate will be fixed for the first seven years and adjust annually each year thereafter.
Do I Qualify for an Adjustable Rate Mortgage?
Qualification requirements will vary depending on which type of adjustable rate mortgage you apply for, but will be based on several factors including:
- Credit history and score
- The amount of income you earn
- The amount of your other debts
- How much equity you will have in the property
Though the initial monthly payment will generally be lower when compared to a fixed rate mortgage, you will need to qualify based on a higher payment to ensure you would be able to afford the home should the rate adjust higher in the future.
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