Adjustable-rate mortgage (ARM) is a home loan with a variable interest rate. With an ARM, the initial interest rate is fixed for a period of time. After that, the interest rate applied to the outstanding balance resets periodically, at yearly or monthly intervals.
Common ARMs: Rate is fixed for 5, 7, or 10 years and then adjusts annually.
Best for those who plan to live in the home less than five years (can afford potential rate increases).
Not ideal for investment properties.
Example scenario
George scored a 5-year contract with a reputable firm and will be relocating to Charlotte, NC. George will be relocating back to Florida after his contract is up. George is looking to take advantage of the rates while having a short-term loan. After finalizing his PAL, Rosegate provided George a 5/1 arm to meet his contract length, and provided an option of a 7/1 for cushion if his contract is extended/possibly better pricing.