Fixed-period Adjustable Rate Mortgage

Categories: Credit and Debt, Real Estate,

A hybrid mortgage loan with an initially low fixed interest rate for a specified period ranging from 1 to 10 years and an adjustable rate thereafter, plus a margin for the rest of the 20 to 30 year loan. Generally the shorter the fixed rate period, the lower the interest rate terms that can be secured for the initial phase of the loan. After that, the margins are percentages added onto the new adjustable interest rate over the remainder of the amortized loan to create a new, fully indexed rate. This represents increased risk to the borrower should they fail to refinance the loan or sell the house outright before the fixed rate period ends.