Adjustable Rate Second Mortgage

An adjustable rate second mortgage, which may qualify as a second mortgage loan, does not apply the same interest rate toward monthly payments for the life of the loan. Throughout the life of that loan, the homebuyer's principal and interest payment for adjustable rate second mortgage loans will adjust periodically based on fluctuations in the interest rate.

For example, a lender of second mortgage loans could offer a 30-year adjustable rate second mortgage loan to a homebuyer at an initial 6.5% interest rate. During an adjustment period for the ARM Mortgage loan, the market interest rate could rise to 8.0%, resulting in a significantly larger interest payment. Similarly, the market interest rate could decrease to 6.0%, resulting in lower interest payments.

Adjustable Rate Second Mortgage FYI:

An adjustable rate mortgage, or ARM, is different from a traditional fixed rate second mortgage because the interest rate changes during the life of the loan in accordance with movements in the index rate.

If you can take advantage of a low mortgage rate when applying for a mortgage, then a fixed rate mortgage might be the way to go. But there are many reasons to consider an adjustable rate mortgage. Adjustable rate second mortgages generally have lower initial interest rates than fixed rate second mortgages and can end up saving you a substantial sum if rates remain steady or continue dropping. And, since loan amounts are often dependent upon the ratio of your current income to the cost of the loan's first year of payments, an adjustable rate mortgage may mean a larger total loan than a fixed rate mortgage. We suggest speaking with a mortgage specialist who can look at your unique situation and help you discover whether an adjustable rate mortgage is right for you.