An Adjustable Rate Mortgage (ARM) is a loan in which the interest rate, and thus the monthly payments, are subject to change over the term of the loan. These changes usually occur yearly, but could be as seldom as every 3-5 years, depending on your loan terms. Some ARM products “mix” a fixed-rate and adjustable rate in the loan term. An example of this is the 5/1 ARM, where the loan has a fixed rate for the first five years (initial period) and then can vary each year after the initial period based on a specific interest rate index, plus an additional amount (margin) until the loan is paid off.

There are two types of caps that can be used to limit the amount that an interest rate can change. One example is a periodic cap that limits the interest rate increase or decrease from one adjustment period to the next. The second example is a lifetime cap, which limits the interest rate increase or decrease over the life of the loan. All dwelling-secured consumer ARM loans have a lifetime limit on the interest rate increase. ARM loans may also have a floor rate, meaning the lowest rate that can apply at any time.

  • Advantages: The initial principal and interest payments are lower, as compared to a fixed-rate loan. Also, if interest rates drop in the marketplace, payments may become lower without refinancing.
  • Disadvantages: A borrower doesn’t have a set amount of money they pay year after year. There is an increased exposure to the risk of possibly significant monthly payment increases if interest rates increase.


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For more information on adjustable rate mortgages:

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Call us at 410-558-4200 or toll-free at 1-888-561-BANK (2265).

More information on ARM loans can be found in the booklet title "Consumer Handbook on Adjustable-Rate Mortgage" published by the CFPB.Download this CFPB Booklet.

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3301 Boston Street
Baltimore, Maryland 21224
Phone: (888) 561-2265
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Certain restrictions apply. Loan approval subject to borrower qualification, completion of application and verification of homeownership. Rates and programs are subject to change without notice. Satisfaction of credit qualifications and occupancy. Loan pricing can only be locked through a home mortgage consultant. This collateral piece is provided as a convenience, does not serve as a substitute for a borrower's actual loan documents, and is not a commitment to lend. Borrowers should become fully informed by reviewing all of the loan and disclosure documentation provided. While we believe these products could be beneficial to you, there may be other mortgage products we can offer you for which you may qualify. We would also be happy to discuss those options with you. For more helpful information about residential mortgage products, please visit http://www.1stmarinerbank.com/loanoptions.