A variable-rate mortgage or adjustable-rate mortgage is a mortgage loan that typically locks in a lower fixed interest rate over a shorter period of time like 3, 5, 7, or 10 years and then adjusts based on the market. Market conditions may affect a number of different financial factors, which, cause the interest rates on an adjustable rate mortgage to rise and fall. Adjustable rate mortgages van use different indexes to establish the rate of the adjustable rate mortgages like the 11th District Cost of Funds Index (COFI), the London Interbank Offered Rate (LIBOR), the 12-month Treasury Average Index (MTA), the Constant Maturity Treasury (CMT) and the National Average Contract Mortgage Rate.

The monthly payments on an adjustable-rate-mortgage may be usually lower during the initial fixed period of the loan making more expensive properties more affordable. However, the rates on adjustable mortgage are short-term. Short term rates are usually lower than fixed-rate mortgages resulting in lower monthly payments for the fixed period of the ARM. ARMs allow a home buyers to purchase a more expensive home. ARM are also a great loan option for short-term real estate investments of 3 to 10 years.

Adjustable-rate mortgages (ARMs), have monthly payments that start lower that a fixed-rate mortgage but can move up and down as interest rates fluctuate. The rates for an adjustable-rate mortgage are usually based on other leading financial and market indexes. To check the most current rates on an ARM, contact a US Mortgages Personal Mortgage Advisor for the latest rates.

The rate for an ARM adjusts after a given time after the fixed rate period ends. It’s commonly known as know as the “adjustment period.” The most common adjustment periods for ARM loans are 3,5,7, or 10 years. After the initial fixed period the adjustable-rate-mortgage will adjust annually. This means that once a year, the loan rate adjusts to the financial index plus the margin.

A fixed-rate mortgage is a home loan with an interest rate that stays the same over the entire length of the loan. The benefit of a choosing fixed-rate mortgage is that your P&I payment (principal and interest) will stay the same and will never fluctuate regardless of the changes in market rates.

The most popular repayment terms for a fixed-rate mortgage is either 30-years. Another common term is 15 years and typically used by older borrowers who want to pay the home off prior to retiring or savvy borrowers who want to save the interest over time and who can handle a larger monthly payment. 40 and 50 year mortgages are also now available and are most commonly used in areas with higher priced homes to keep homeownership in reach for qualified borrowers. If you're refinancing and would like to keep your remaining prepayment period the same, you should consider the US Mortgages Goal Keeper Refinance™ which allows you to customize the term of your loan from 8 year up to 29 years without a higher interest rate.