How each rate works
With a fixed-rate loan, principal and interest are generally predictable for a fully amortizing loan, though taxes, insurance and other parts of the total payment can change.
An ARM typically starts with an introductory period. After that period, its rate can adjust on a schedule based on an index and margin, subject to the loan’s terms.
Read the adjustment limits
Ask when the first adjustment can occur, how often the rate may change, and how the index and margin work. Review initial, subsequent and lifetime adjustment caps in the disclosures.
A cap limits a change; it does not promise your payment will remain affordable. Confirm how the lender calculates payments at different rates.
Compare the whole offer
Use the same loan amount, term, property, lock period and pricing date. Compare the initial and possible future principal-and-interest payments, APR, points, fees, credits and mortgage insurance.
Consider your time horizon, but avoid assuming you can sell or refinance before a rate adjustment. A refinance has its own costs and eligibility requirements.
Official sources
Educational information only. Loan availability, eligibility, pricing, fees, approval, and any rate lock must be confirmed by a licensed mortgage professional.