The Federal Reserve Board and the Office of Thrift Supervision prepared this information on adjustable-rate mortgages (ARMs) in response to a request from the House Committee on Banking, Finance, and Urban Affairs (currently, the Committee on Financial Services) and in consultation with many other agencies and trade and consumer groups. It is designed to help consumers understand an important and complex mortgage option available to homebuyers.
People are asking . . .
“Some newspaper ads for home loans show surprisingly low rates. Are these loans for real, or is there a catch?”
Some of the ads you see are for adjustablerate mortgages (ARMs). These loans may have low rates for a short time--maybe only for the first year. After that, the rates may be adjusted on a regular basis. This means that the interest rate and the amount of the monthly payment may go up or down.
“Will I know in advance how much my payment may go up?”
With an adjustable-rate mortgage, your future monthly payment is uncertain. Some types of ARMs put a ceiling on your payment increase or interest-rate increase from one period to the next. Virtually all types must put a ceiling on rate increases over the life of the loan.
