Adjustable Rate Mortgage

An adjustable rate mortgage is a kind of mortgage where the interest rates vary according to the cost of borrowing for the bank or financial institution that lends to you, or some other specific benchmark. Watch this quick video to know more about Adjustable Rate Mortgage. 

Transcript

An adjustable rate mortgage is a kind of mortgage where the interest rates vary according to the cost of borrowing for the bank or financial institution that lends to you, or some other specific benchmark. In adjustable rate mortgages, equated monthly installments rise or fall when interest rates rise or fall. Typically, banks and financial institutions charge an interest rate lower than that of fixed interest loans for adjustable rates. A home loan at a floating rate is the best example of this. In such home loans the interest rates float or adjust over a period of time, according to the fluctuations in credit market conditions and changes in the monetary policy of the RBI. The RBI plays a crucial role is influencing the interest rate of floating rate loans. You can switch from a fixed interest rate loan to a floating interest rate loan anytime. But, most banks require you to pay processing charges and other fee for switching the loan. Even though fixed-interest rate loans are considered more stable, homebuyers often end up paying more because the interest rates are higher and fixed.