Adjustable Rate Mortgage

An adjustable rate mortgage (ARM) is a mortgage for which the interest rate is not fixed. Unlike the fixed interest rates used by fixed rate mortgages (FRMs), the interest rates of ARMs can be adjusted at adjustment intervals throughout the mortgage term at predetermined adjustment intervals.

In Switzerland, ARMs are referred to as variable mortgages or variable rate mortgages. These mortgages are typically used for short-term financing in between fixed rate mortgage terms, or to avoid committing to long-term fixed rate mortgages when interest rates are high.

The benefit of variable mortgages is that they have short terms. The downside of variable mortgages is that the interest rates are typically high compared to those of fixed rate mortgages and LIBOR-based mortgages.

Because the interest rates of variable mortgages can be changed by the lender at any time, there is a risk for mortgagors because the final cost of the mortgage is unknown. However, the short terms allow mortgagors to withdraw from mortgage agreements relatively soon if rates become unfavorable. The short terms also mean that you can choose to amortize all or part of your mortgage ahead of each mortgage agreement renewal.

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