An adjustable-rate mortgage (ARM) typically offers a lower initial interest rate than a traditional 30-year fixed loan. You will often hear them expressed as five-year, seven-year or ten-year ARMs; that means that you will have the same rate for that specific amount of time. A five-year ARM means the rate is fixed for the first five years, and so on.
After the fixed-rate period expires, the rate will adjust up or down for the remainder of the 30-year loan, depending on market conditions and the LIBOR index. But the good news is there are caps to keep your mortgage payment under control. An initial cap is the maximum amount the rate can adjust after the fixed period. The periodic cap limits increases from one adjustment period to the next. The lifetime cap puts a limit on how much the rate can increase over the life of the loan. Highlighted features and guidelines are listed below.