What is an ARM loan?

An ARM, or adjustable-rate mortgage, has a fixed rate for an initial period — commonly 5, 7, or 10 years — then adjusts periodically based on a market index plus a margin. The start rate is usually lower than a fixed loan.

ARMs make sense if you'll sell or refinance before the fixed period ends, or expect rates to fall. Caps limit how much the rate can move. We'll compare an ARM to a fixed loan based on how long you plan to keep the home.

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