Mortgage Dictionary

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Interest-Only ARM

Like the fixed-rate interest-only loan , an interest-only ARM requires only monthly interest payments. Like a traditional adjustable-rate mortgage, it often has an initial period when the interest rate is fixed, followed by periodic adjustments. The main advantage of an interest-only, adjustable-rate mortgage (ARM) is its low monthly mortgage payments. The main disadvantages are that it does not reduce the loan principal, and that the interest rate varies (often upwards) after the initial fixed-rate period.

See also:   Adjustable-Rate Mortgage (ARM)