Adjustable-rate mortgages are home loans with interest rates that vary based on changes in market interest rates.
Adjustable-rate mortgages are usually offered with 30-year terms.
The initial rate for an adjustable-rate mortgage is usually slightly lower than for a fixed-rate loan. That initial rate remains constant during an introductory period. As a general rule, the shorter the introductory period, the lower the initial interest rate. Often the fixed introductory period is set based on the length of time the borrower expects to own the home.
After the introductory period expires, the interest rate is subject to adjustment at predetermined intervals—usually every six months. Rate adjustments are based on market interest rates, but adjustment caps limit how much an interest rate can change in a specified time period.
Often, adjustable-rate mortgages offer borrowers the option of an interest-only loan for a fixed period of time. This results in a lower payment for that period.
Adjustable rate mortgages may be a good choice if you don’t plan to own the home for a long period of time, or if interest rates are high and expected to come down.