An adjustable rate mortgage is a mortgage used in the purchase, or refinance of a home, and where the interest rate is variable over time

An adjustable rate mortgage can be used by anyone buying or refinancing: A primary residence A second home An investment (rental) property, also known as non-owner occupied.

Be very careful when considering loan products with an adjustable mortgage rate that go by the names of option ARM, or specialty ARM, and offer very low mortgage interest rates. These types of adjustable rate mortgage loans in particular have the ability to increase the principal of your adjustable rate loan to more than your initial amount and are should only be used by those that understand them.

Today, many ARMs are actually hybrid loans, with a low initial fixed-interest rate that switches to an adjustable rate on a pre-determined date.

Amortization takes place when payments are large enough to pay the interest due plus a portion of the principal. Negative amortization occurs when payments do not cover the cost of interest. The unpaid amount is added back to the loan, where it generates even more interest debt. If this continues you could make many payments, but still owe more than you did at the beginning of the loan. Negative amortization generally occurs when a loan has a payment cap that keeps monthly payments from covering the cost of interest.

A lender may offer you an initial rate that's lower than the sum of the index and the margin. This sometimes happens when the seller pays a fee that compensates for the reduced rate

Discounted Rates - Buydowns Sellers sometimes pay a fee that allows the lender to offer you an initial rate that's lower than the sum of the index and the margin. The buydown rate will eventually expire.

In the world of real estate mortgage financing, the most complex loan program is an adjustable rate mortgage product called the Option ARM. Mismanaged, it could cost a home owner her equity. For sophisticated borrowers who understand its nuances, however, it's a brilliant mortgage alternative

Most borrowers who take adjustable rate mortgages (ARMs) need them to qualify for the loan they want. Because the initial rate on ARMs is usually lower than the rate on fixed rate mortgages (FRMs), these borrowers can qualify with an ARM but not with a fixed-rate mortgage (FRM). When interest rates rise, fewer borrowers can qualify using FRMs, with the result that ARMs increase in relative importance

An ARM, short for "adjustable rate mortgage", is a mortgage on which the interest rate is not fixed for the entire life of the loan. The rate is fixed for a period at the beginning, called the "initial rate period", but after that it may change based on movements in an interest rate index. ARMs are contrasted with fixed-rate mortgages (FRMs) on which the quoted rate holds for the entire life of the mortgage.