April 22nd, 2013 9:31 PM by Michael and Jill Kohler
The interest rate for an ARM is a fixed percentage for an initial period of time, usually 5 to 7 years. Then it adjusts depending on an economic index such as the Prime Rate or Treasury securities. Usually the initial interest rate on an ARM is lower than a comparable fixed rate mortgage.
Despite many advantages of ARMS, they are fairly unpopular today. Only 2.3 percent of mortgages closed in February were adjustable rate mortgages. Fixed rates are simply less risky. Borrowers pay an interest rate set by the lender for the life of the loan. Borrowers today want to lock in those low interest rates for many years to come, which is another reason for the very low percentage of ARM loans and high percentage of fixed rate loans.