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Definition of 'Fixed-Period ARM'
An adjustable-rate mortgage (ARM) with an initial fixed-interest-rate period. After the fixed-interest rate expires, the interest rate starts to adjust based on an index plus a margin. The amount by which the interest rate can adjust after the fixed period is usually subject to an interest rate cap structure.
These are often called "hybrid ARMs".
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Investopedia explains 'Fixed-Period ARM'
Typically, in the prime mortgage market, fixed-period ARMs are offered with fixed-interest rate periods of three, five, seven and 10 years. In the subprime market a two-year fixed-rate period is frequently offered. Typically, the shorter the fixed-interest rate period, the lower the interest rate will be. A borrower should carefully consider their time horizon when choosing a fixed-period ARM and recognize the risks associated with the expiration of the fixed-interest rate period.
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In a climate of rising interest rates, having an adjustable-rate mortgage can be risky.
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Both of these have advantages and disadvantages depending on your financial needs and prospects.
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Search and compare the best fixed and adjustable mortgage rates in your area with Bankrate.com.
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We explain the calculation and payment process as well as the amortization schedule of home loans.
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We walk through the steps needed to secure the best loan to finance the purchase of your home.
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Find out how to determine whether refinancing will put you ahead or even more behind.
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