Adjustable Rate Mortgage or ARMs
Adjustable Rate Mortgages (ARMS): Payments increase or decrease on a regular schedule with changes in interest rates; increases subject to limits
An Adjustable Rate Mortgage may make sense If you are confident that your income will increase steadily over the years or if you anticipate a move in the near future and aren't concerned about potential increases in interest rates.
If the rate quoted is for an adjustable-rate mortgage, ask how your rate and loan payment will vary, including whether your loan payment will be reduced when rates go down.
Keep in mind that when interest rates for adjustable-rate mortgages go up, generally so does the monthly payment.
The benefit of ARMs is you have periods of fixed interest and then opportunities to take advantage of current interest rates. If rates go down, you benefit. The problem is that you may find your rate adjusting during periods of rising interest and this can mean higher payments and more money out of your pocket. But these do give you some of the benefits of variable rate mortgages with more stability for those who want to mitigate the risk of a variable rate mortgage.
However, as with all good deals check the fine print. Sometimes, an adjustable rate mortgage can cost you more in the long run, especially after the initial incentive interest rate is replaced by an adjusted rate. Know what you are getting into.
FHA administers a number of programs, based on Section 203(b), that have special features. One of these programs, Section 251, insures adjustable rate mortgages (ARMs) which, particularly during periods when interest rates are high, enable borrowers to obtain mortgage financing that is more affordable by virtue of its lower initial interest rate. This interest rate is adjusted annually, based on market indices approved by FHA, and thus may increase or decrease over the term of the loan.
