What is the difference between a fixed-rate and adjustable-rate mortgage (ARM) loan?

With a fixed rate mortgage, the interest rate is set and fixed when you take out the loan and will not change.   Most common programs are 15 year-fixed loan and 30 year-fixed loan.

With an adjustable rate mortgage (ARM), the interest rate may go up or down. Usually ARMs will start at a lower interest rate than fixed rate mortgages. This initial rate may stay the same for months or years, depends on the program that you choose. When this introductory period is over, your interest rate will change according to the index that it ties with and the amount of your payment will likely go up.   Many ARMs will limit the amount of each adjustment by the index, and set a “cap” on how high your interest rate can go over the life of the loan and/or set a “floor” also limit how low your interest rate can go.

* Message from your Real Estate and Mortgage Broker, Andy Lamandyjustsold@gmail.com, 408-218-2513

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