Lenders generally charge lower initial interest rates for ARMs than for fixed-rate mortgages.
The lower rate may provide you with lower cash outlays in the first year of the loan and in the years thereafter should rates remain relatively stable or decrease. Additionally, you may be able to qualify for a greater amount under an ARM program than a fixed rate program. Rates on several ARMs have dropped in recent years. Nevertheless, interest rates may increase, leading to higher monthly payments in the future. The terms which follow will help you understand some of the important concepts involved with ARMs.