Choosing the best loan
Adjustable-rate mortgages (ARMs)

---

Adjustable-rate mortgages have fluctuating interest rates and the potential for changing payment amounts. ARMs help lenders cover the cost of lending money in a changing economy by transferring a portion of the interest rate risk to borrowers. In exchange for borrowers sharing the risk, lenders offer an initial interest rate that’s substantially lower than the rate for fixed-rate loans.

• One-year ARM. A one-year ARM adjusts annually, with each adjustment typically limited to a 1% to 2% increase. A maximum lifetime cap of 6% is common. One-year ARMs offer attractive initial interest rates to borrowers who are willing to accept the uncertainty of future rate and payment changes. If the borrower puts less than 20% down, the borrower is typically qualified using the maximum first-year adjustment rate.
• Three-year and five-year ARMs. These mortgages have adjustment periods of three and five years, respectively. Each adjustment is typically limited to a 2% increase with a lifetime cap of 6%. For more information about ARMs, review the terms in the ARMs Glossary.