Lenders first introduced ARMs in the 1980s when interest rates soared into the double digits forcing many people out of the home buying market. They tied the rate to a variable national index such as U.S. Treasury bills.
Today many first-time buyers who have difficulty qualifying for a home loan still settle for adjustable rate loans because the initial "teaser" interest rate of the mortgage is normally two or three points lower than a fixed rate loan. ARMs are particularly attractive if you plan to be in your home a short time. They tend to adjust yearly or every three years usually within certain limits or caps that prohibit the interest rate from shooting up too high. Make sure terms such as these are spelled out in any ARM agreement you choose.
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