What is adjustable rate loan
An “adjustable-rate mortgage” is a loan program with a variable interest rate that can change throughout the life of the loan. It differs from a fixed-rate mortgage, as the rate may move both up or down depending on the direction of the index it is associated with. Two different lenders may have the same initial interest rate but offer different rate caps. Even if you think you’ll move or refinance before the adjustable period starts, it’s a good idea to know how much your rate can change. Ask the lender to calculate the highest payment you may ever have to pay on the loan you are considering. The initial interest rate on an adjustable-rate mortgage (ARM) is set below the market rate on a comparable fixed-rate loan, and then the rate rises (or possibly lowers) as time goes on.