Adjustable-Rate Mortgage – ARM

Adjustable-rate mortgages are mortgages which have interest rates that adjust in accordance to a predetermined interest. A mortgage that has quite small interest payment in a low interest rate environment can become unbearable if interest rates shoot up. Therefore a certain amount of risk is transferred from the lender to the borrower.

Adjustable-rate mortgages usually have caps and other details written into the mortgage contract. A person taking out an adjustable-rate mortgage should be aware of the risks posed by a potential rise in interest rates.

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