2010 Real Estate Guide
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1-year ARM
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What is it? ARM stands for adjustable-rate mortgage. Unlike fixed-rate mortgages, these loans don't have a rate guaranteed to remain stable for the length of the term. The introductory rate on these loans, which lasts only for the first year, often are significantly lower than rates on fixed-rate loans. The term for these loans is typically 30 years.

One year into the loan's term, the interest rate on this ARM (and the resulting payments) adjusts periodically based on a mortgage index such as Libor or COFI. In a falling-rate environment, that's a good thing, as it results in lower payments. However, if rates increase, you'll be stuck with higher payments.

Who is it good for? Buyers who do not plan to stay in their homes very long and who are looking for lower borrowing costs. Also, borrowers with enough cushion in their income to cover higher payments should rates increase.


 

 

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