Most borrowers prefer the safety and value of a fixed rate loan. When interest rates increase The spread between adjustable rate and fixed rate mortgages is greater. The likelihood of the adjustable rate increasing is diminished, and the likelihood of a lower rate improves. The advantages of an adjustable rate become more desirable. All these loans are typically based on a 30 year amortization.
Some ARMs have a different index.
Beginning with the fourth year the interest rate will adjust. Each year thereafter the rate will adjust based on the US Treasury. Hence with no change in the underlying index rate, the first adjustment will likely be upward. However, if interest rates decline, there may be a rate decrease. Rate Caps Borrowers aren t completely unprotected during the rate adjustments.