However, if you lock in your rate when interest rates are high, your rate will not go down if interest rates should fall. The payments are higher per month, but equity is acquired quickly. These loans are recommended for those planning to sell their house in a few years but still want a stable rate. Adjustable rate mortgages have a rate that changes periodically. The rate is usually linked to a financial index, such as a Treasury security, so the rate can vary over the life of the loan, which usually lasts 25 to 30 years.
ARMs usually have lower monthly payments than fix rate mortgages, to start with.
This makes them attractive to many home buyers. This means if you start out with a rate of 6 percent, it could jump to 12 percent in just three years. There are caps that can be placed on ARMs. One cap can be put on the amount the rate can jump in one year, and a second cap can be placed on the rate over the life of the loan. ARMs are advantages during recessions when interest rates are low, but if the economy turns around they can also be a burden.