What Exactly Is an Adjustable Rate Mortgage?
Updated: Apr 26
If you’re in the world of real estate, you’ve probably heard of an adjustable rate mortgage, but it can seem like a pretty complicated concept at first. It’s really not hard, but most people need just a little help. Let’s talk a little about exactly what an adjustable rate mortgage is.
An adjustable rate mortgage is really just what it says. The interest rate of the loan can go up and down over the course of the loan, rather than staying the same. Adjustable rate mortgages are generally available from most lenders, and for most term lengths. Just like any other loan, you should make sure that you understand the details of your mortgage, as they change from bank to bank, and even from loan to loan. If you’re not sure, just ask.
So where do these rates come from?
Of course, the bank can’t just raise and lower the rate of your mortgage however they want. Instead, the bank will choose a market index to base your rate off of. There are several options, but most of them are pretty similar and will stay close to each other. Because of this, it usually doesn’t make very much difference which index is chosen, but you should still find out which one your lender will use and why.
When is an adjustable rate mortgage a good idea?
No type of loan is right for everyone in every situation. This type of loan is best if you expect market interest rates to go down or stay about the same over the course of your loan. It’s also often a good idea if you intend to take a short-term loan or pay your mortgage off early.
Have more questions about real estate? Contact us – we’re experts in the field and are happy to answer any questions that you have.