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What are the rates and terms for an adjustable rate mortgage?

A: ARMs come in a variety of flavors. In the present market, everything from a loan whose interest rate changes every year to one which does not change for as long as ten years are on the mortgage menu. At times, there are products whose rates change as often as monthly!

The most common ARM in the market today is a 5/1 Hybrid ARM. The initial interest rate is fixed for five years, and average rates are presently running in the mid-three-percent range, making them very attractive. However, they do carry risks. Most notably, if interest rates rise sharply when your loan changes from fixed to adjustable (a reasonable possibility) your monthly payment could rise by more than 60%, possibly breaking your budget at the very least. That said, there are ways to prepare for any rise in rates, but you need to be a well-disciplined manager of your money to make certain you're as covered as you can be.

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Keith Gumbinger
Keith Gumbinger
Mortgage Expert
Vice President, HSH.com
About Keith: Mortgage market observer and analyst with 35 years experience... (more)
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