An adjustable rate mortgage is just what its name implies - a home mortgage loan with an interest rate that is adjusted throughout the term of the loan. There are many advantages and disadvantages to choosing an adjustable rate mortgage, and it is important to weigh both the pros and cons before deciding on an adjustable rate mortgage as opposed to a fixed rate mortgage. The choice of mortgages will chiefly be made based on your financial situation, the current realty market that you are living in, and the trend in loans.
The greatest advantage of an adjustable rate mortgage is that is most often offered at a lower interest rate than a fixed rate mortgage. The lender is freer to offer a lower interest rate on an adjustable rate mortgage because they do not have to guarantee the interest rate for the life of the loan, only until the first interest rate review. In most cases, the first interest rate review occurs at one, three or five years into the life of the loan. Then it is reviewed at regular intervals after that, ranging from one to three years, usually.
Another advantage of an adjustable rate mortgage is present when there is a high interest rate market at the time that you are looking for a mortgage. If the mortgage interest rates are high at the time you are securing your mortgage loan, an adjustable rate mortgage may afford you a lower interest rate in the future, instead of locking you into a high interest rated loan for many years. When the mortgage interest rate comes down, your interest rate will come down as well.
