Adjustable Rate Mortgage

What is an Adjustable-Rate Mortgage?

An adjustable-rate mortgage (ARM) is a mortgage that differs from a fixed-rate mortgage because the interest rate changes periodically based on a specific benchmark, usually a financial index. In an ARM, when the market rate changes, generally, the customer’s monthly payment will change. If the market rate increases, so will the customer’s interest rate on his/her loan. If the market rate decreases, the customer’s interest rate will decrease as well. Sometimes ARMs are called “variable-rate mortgages” or “floating-rate mortgages”.

Additionally, American Interbanc Mortgage’s ARM products have “rate caps” to limit the amount the customer’s interest rate goes up or down during the adjustment period.

Though lenders structure their ARMs differently, at American Interbanc Mortgage we offer a “hybrid ARM” which features an initial fixed-interest rate for a pre-defined period, usually 5, 7, or 10 years. At the end of the fixed-rate period, the loan rate becomes adjustable which means the loan rate is subject to change. However, American Interbanc Mortgage limits the change in interest rates in our hybrid-ARMs to changing only once per year. Therefore, after the fixed-rate period, if market interest rates go up or down, the customer’s payments will change accordingly, once per year, for the remainder of the loan term. The overall term for an American Interbanc Mortgage ARM is 30 years. Additionally, American Interbanc Mortgage’s ARM products have “rate caps” to limit the amount the customer’s interest rate can go up or down during the adjustment period.

ARM products are usually referred to by the terms of the product; for example, in a 7/1 ARM, the “7” stands for a 7-year introductory period in which the interest rate remains constant and the “1” shows the interest rate is subject to change once per year after the introductory period expires.

Which Type of Customer Benefits from an Adjustable-Rate Mortgage the Most?

ARMs are most beneficial to customers who are primarily concerned with getting the lowest interest rate now. ARMs often offer lower interest rates than fixed-rate mortgages, because the adjustable rate reduces risk to the lender. If the customer wants to minimize his/her interest payments today and does not plan on staying in the property for a long time, an ARM may be the right mortgage.

ARMs are also good mortgages for customers who expect interest rates to drop in the future. When interest rates drop in the market, the customer’s ARM reduces too, without having to refinance and incur the time and cost of refinancing a loan.

Because the customer’s interest rate is subject to changes during the mortgage’s term, it can be more difficult to predict monthly mortgage costs beyond the fixed rate period in the ARM.

Summary of Adjustable Mortgage Rates

The customer’s interest rate and monthly principal and interest payments remain the same for an initial period of 5, 7, or 10 years, then adjust annually

Typically ARM loans offer a lower rate than a fixed-rate loan during the initial fixed rate period

Good choice if the customer plans to move in a few years and therefore is not concerned with possible rate increases

Best for customers who want a lower initial monthly payment or think interest rates may go down

The American Interbanc Mortgage Difference

At American Interbanc Mortgage, our low-cost model allows us to lend at the most competitive rates in the market. However, we are also concerned that our customers find the best product for their needs. Therefore, we limit the number of interest rate changes per year in our ARMs and have rate caps to keep the rate from ballooning in the future. If an ARM sounds like the best mortgage for you, call our Loan Officers, at 800-724-004, or visit to customize your rate quote today!

Talk to a Loan Specialist Today

We want you to feel confident about purchasing or refinancing your home. Our experienced loan specialists are here to answer any questions or to address any concerns you may have. Get in touch today to lock in your custom rate or to begin the application process.