Adjustable rate mortgage loans are loans that are fixed for a period of time, and then adjust based on a pre-determined index. The advantages of adjustable rate mortgage loans include a lower initial interest rate and payment. This lower rate and payment can sometimes help borrowers qualify for a larger loan amount. Offsetting that benefit, however, is the uncertainty of what your interest rate will be in the future.
Adjustable rate mortgage loans typically stay fixed for terms of 3, 5, 7 or 10 years. The longer the term stays fixed, the higher the rate typically is. Sometimes the features of adjustable rate mortgage loans are coupled with interest only options as well, allowing a borrower to pay just the interest due for the initial term. The disadvantage of this, however, is that once your initial term is over, your payments will increase.