What is an adjustable rate mortgage?
An adjustable-rate mortgage, or ARM, is a type of mortgage in which the interest rate is variable. This means that the rate can change over time, depending on market conditions. In other words, monthly payments can go up or down, depending on what happens to interest rates.
How does an adjustable rate mortgage work?
An adjustable-rate mortgage, or ARM, is a loan where the interest rate changes throughout the life of the loan. This type of mortgage is common in India, where interest rates can change frequently. An ARM in India typically has a fixed interest rate for the first few years of the loan, and then the interest rate adjusts every year after that. This allows borrowers to take advantage of lower interest rates when they become available but also protects them from sudden increases in interest rates.
Difference between Adjustable Rate Mortage & Fixed Rate
Adjustable Rate Mortgage (ARM) and Fixed-Rate Mortgages are two types of loans that borrowers face when financing anything through loans. A Fixed-Rate mortgage offers the same interest rate for the life of the loan, making it easier to guestimate your monthly costs for decades to come.
On the other hand, an Adjustable Rate Mortgage has a variable interest rate that will change periodically based on market fluctuations and is initially lower than the fixed-rate mortgage, however, your monthly payments could eventually become higher depending on how the market moves.