adjustable-rate mortgage
Quick Summary
An adjustable-rate mortgage (ARM) is a home loan where the interest rate can change periodically, typically after an initial fixed period. This means your monthly payments can increase or decrease over the life of the loan, unlike a fixed-rate mortgage where the payment remains consistent.1
ARMs often start with a lower "teaser rate" than fixed-rate loans, which can save money initially. However, after the fixed period, the rate adjusts based on market conditions, tied to an index rate plus a margin set by the lender. Federal law requires ARMs to have caps that limit how much the interest rate can increase at each adjustment and over the loan's lifetime, protecting borrowers from extreme payment hikes.1
An ARM might be suitable if you plan to sell the home before the fixed period ends, if the initial rate offers significant savings, or for larger loan amounts where even small rate differences matter. However, the risk of rising payments after the fixed period requires careful consideration of your budget and risk tolerance.1
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United StatesThe George W. Bush administration…mortgages, most of which were adjustable-rate mortgages (ARM) at low, so-called teaser, interest rates that ballooned after a few years. The rates for many of those ARMs jumped at the same time that overbuilding undercut the housing market; foreclosures mounted, and investment banks that under recent deregulation had been allowed…
Read More…mortgages, most of which were adjustable-rate mortgages (ARM) at low, so-called teaser, interest rates that ballooned after a few years. The rates for many of those ARMs jumped at the same time that overbuilding undercut the housing market; foreclosures mounted, and investment banks that under recent deregulation had been allowed…
Read More- Great Recession
…great majority of whom held adjustable-rate mortgages (ARMs), could no longer afford their loan payments. Nor could they save themselves, as they formerly could, by borrowing against the increased value of their homes or by selling their homes at a profit. (Indeed, many borrowers, both prime and subprime, found themselves…
Read More…great majority of whom held adjustable-rate mortgages (ARMs), could no longer afford their loan payments. Nor could they save themselves, as they formerly could, by borrowing against the increased value of their homes or by selling their homes at a profit. (Indeed, many borrowers, both prime and subprime, found themselves…
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financial crisis of 2007–08Key events of the crisis…defaults from subprime borrowers holding adjustable-rate mortgages (ARMs). Partly because of the rate increase, but also because the housing market had reached a saturation point, home sales, and thus home prices, began to fall in 2005. Many subprime mortgage holders were unable to rescue themselves by borrowing, refinancing, or selling…
Read More…defaults from subprime borrowers holding adjustable-rate mortgages (ARMs). Partly because of the rate increase, but also because the housing market had reached a saturation point, home sales, and thus home prices, began to fall in 2005. Many subprime mortgage holders were unable to rescue themselves by borrowing, refinancing, or selling…
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