Fixed to Adjustable Rate mortgages 10/1, 7/1, 5/1, 3/1
The other categories of conventional loan types available include the Fixed to adjustable rate categories. These loans have an interest rate fixed for the first period of the loan (ie. 5 years for the 5/1 arm) After the initial fixed period, the loan will adjust based on a margin and an index as determined by the program. Usually these loans are based on and index using either the 1 Year Treasury Bill or the LIBOR. The rate will then adjust once per year up to two percentage points up or down after the initial adjustment. Many times your rate will go down on the first adjustment.
The rate can be a lower "start rate" than standard fixed 30 year products sometimes rate will adjust down depending on your margin and the market conditions affecting the index used to calculate the adjustment.
Your loan payment has the potential to increase. If you don't sell your home or otherwise payoff your loan within the fixed period, your payment may increase. Making sure that you understand this risk is very important. If you don't plan to have your property for a long time or you can afford a potentially higher payment in the future, then you may consider this product.