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For homebuyers who plan to move or sell in three to five years, an adjustable rate mortgage is often a wise mortgage choice since it can be less expensive over a short payback time period. ARMs—or adjustable rate mortgages—begin at a fixed rate (often much lower than the going 30-year rate) but then adjust after the initial fixed period of time.

Facts about Adjustable Rate Mortgages:

	Once the introductory rate expires, your interest rate and amount of your monthly payment will fluctuate according to index activity.
	The 'index' used to determine your rate ultimately determines your monthly payment. Know which index drives your rate and review the index history for stability. Adjustable rate mortgages are determined by two things: an economic index and a margin. Economic indices like LIBOR, COFI and Treasury securities are some of the most commonly used by lenders.
	With an ARM, if the index rate goes down, so does your interest rate. This could mean a reduction in your total monthly payment, or a sudden opportunity to refinance at a fixed rate with a lower premium.

Adjustable Rate Mortgages, It’s All in the Numbers

ARM terms are defined by 1/1, 2/1, 3/1, 5/1, 7/1 and 10/1. The first number notes the amount of time the introductory rate is fixed. The second number tells you how often the rate fluctuates, or adjusts.

For example, 1/1 means the introductory rate is stable for one year and adjusts every year thereafter for the life of the loan. A rate of 10/1 means the introductory rate remains the same for 10 years and adjusts annually every year for the remaining time of the loan.

With a 1/1 term on a 20-year mortgage, your payment could ostensibly change (or even worse—increase) every year for the life of the loan. On the same 20 year mortgage with a 10/1 ARM term, you can count on the same mortgage payment for 10 years, but you still may have a higher monthly payment for the remaining 10 years.

Contact an F&M Mortgage Group consultant to determine whether an adjustable rate mortgage or another financing option is the right solution for you and your home buying budget.