Most adjustable-rate mortgage (ARM) loans feature an initial rate period, during which the interest rate and principal and interest payments remain the same.
Once the initial rate period expires, the interest rate will adjust once per year for the remainder of the loan term. The adjustments are based on a fluctuating index plus a margin. When the interest rate adjusts, your monthly payment will usually increase if interest rates go up or decrease if interest rates fall.
Often, an ARM loan may have a lower starting principal and interest payment than a fixed-rate mortgage. But at the end of the ARM loan’s initial rate period, the interest rate and monthly principal and interest payment could go up. If that happens, you will need to be prepared to make bigger payments. To help avoid significant fluctuations, interest rate caps limit how much the interest rate can go up or down at each interest rate adjustment and over the life of the loan.
ARM loans are named by the duration of the initial rate period and how often the rate will adjust thereafter.
One example is the 5/1 Adjustable-Rate Mortgage:
BBVA offers ARMs with initial fixed-rate period options of 1, 5, 7, and 10 years. Contact us to discuss whether an adjustable-rate mortgage is right for you.
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