Mortgages & Loans

What Is An Adjustable Rate Mortgage?

An adjustable rate mortgage is a variable rate mortgage with an interest rate that adjusts periodically according to the financial index it is based upon plus a margin. To limit the borrower's risk, the Adjustable rate mortgage may have a payment or rate cap. An example of this is if the mortgage has a annual cap of 2 % and a total cap of 13%. This means the mortgage can only increase by 2% maximum each year and could never exceed the 13% maximum ceiling.

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