Lately, most people have chosen a fixed rate mortgage because of low rates. But as rates rise, adjustable rate mortgages (ARMs) might become more popular because they offer a low initial rate that adjusts after a few years.
There are various kinds of ARMs, such as 3/1, 5/1, 7/1, or 10/1. The first number indicates the years the loan is fixed, and the second number tells you how often the loan adjusts after the fixed period.
This mortgage locks you in at a very low rate for the first three to ten years of your loan, and then will automatically adjust to the market interest rate each year thereafter until the end of your loan. People choose this loan because it gives them a low interest rate, and gives them up to ten years to sell their home or refinance, or take a chance with a fluctuating interest rate.
An adjustable rate mortgage might work well for someone who plans to pay off their loan within a few years or plans to sell their home before the fixed period is over. But use caution when using an ARM. You could end up paying a high interest rate if you keep the loan or home longer than you expected.