The interest rate adjustment period is how often your rate is adjusted on an adjustable rate mortgage (ARM), after the initial rate period is over. For example, a 5/1 ARM means you have an initial rate period of five years with a fixed rate and then after five years, your rate can change every year.
There are a number of different mortgage products available to home buyers/owners in all kinds of financial situations. One of these mortgage products is called an adjustable-rate mortgage or ARM. ARMs have rates that move up and down based on a standard rate index. The 5/1 ARM mentioned above isa hybrid mortgage which has a fixed-rate for a certain time period and then converts to an adjustable rate. The 5/1 ARM has interest rate that stays constant for five years, but then is adjusted once a year. There are also 3/3 ARM in which the initial interest rate lasts for three years and then is adjusted again every three years. There is also a 3/1 ARM in which the initial interest rate lasts for three years and after that the interest rate adjustment period is once a year. The first number is the length of the fixed term - usually three, five, seven, or ten years. The second is the adjustment interval that applies when the fixed term is over.
All of this mortgage and lending terminology can be overwhelming, but educating yourself is the best thing you can do for your finances. Before you sign the papers for a mortgage, know the difference between fixed-rate and adjustable-rate mortgages. Beyond just the different types of mortgages, learn about the particulars, like points, APRs and closing costs. Also, know when it is more advisable to get certain types of mortgages. For example, when interest rates are low, it might be best to get a fixed-rate mortgage because it can protect you against increases in the future. But if rates are high, an ARM might be a good choice because you would be able to take advantage of a drop in rates in the future. Also, be sure to shop around for the best loan for you. Find the option that has the lowest APR and closing costs, and the fastest way to building equity. Being an informed consumer who knows their options is your best defense against struggling to make ends meet.
July 10, 2006
