There are many different types of FHA mortgage loans to apply for; one of those is the FHA adjustable rate mortgage or ARM loan. Adjustable rate mortgages have an introductory rate period and a period where the interest rates can change.
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Comparing Adjustable Rate Mortgages
There are many different types of FHA mortgage loans to apply for; one of those is the FHA adjustable rate mortgage or ARM loan.

Adjustable rate mortgages have an introductory rate period and a period where the interest rates can change; while interest rates can theoretically adjust downward, the risk involved with adjustable rates is that the interest rate may increase and raise the amount of monthly payments. It's a calculated risk for those who understand the nature of an FHA ARM loan and plan accordingly.

Borrowers who shop around and compare terms may be able to get into an adjustable rate mortgage that has more favorable terms. Some borrowers go into an adjustable rate mortgage planning to refinance later into a fixed rate loan. That kind of advance planning and long-term thinking is a good idea for any mortgage loan product.

How can a borrower find the best adjustable rate mortgage? To start, comparing conventional loans to one another--and to the terms of FHA ARM loans--is important. How do the terms and conditions measure up?

ARM loans have four specific features to pay attention to; the an index, the margin, the initial interest rate period, and the structure of the interest rate cap where applicable.

The initial interest rate period often features an introductory rate that will go up when that period ends. How high or low is that introductory rate? How long does it last? When the new interest rate is calculated, how high will it be potentially?

The new rate "is calculated by adding a margin to the index. Your lender will disclose the margin at time of loan application (margins may vary from lender to lender, so it's is a good idea to shop around for a low margin). As the index figure moves up or down, your interest rate will be adjusted accordingly." That according to the FHA official site.

One feature of the ARM loan you should pay attention to is how high and how often the interest rate may be re-calculated. FHA ARM loan interest rates are constant for the first three to ten years (the actual length of time depends on the terms of that specific loan.)
After that initial period the interest rates are adjusted once per year and have interest rate caps that also vary from loan to loan. Some have caps of one percentage point, with lifetime-of-the-loan limits of five percentage points.

When doing your homework on ARM loans, there are several questions to ask. How do such caps and adjustment periods on FHA ARMs compare to conventional ARM loans? Do you get similar protection from increased interest rates with a conventional ARM? These are important answers to have prior to deciding on an adjustable rate mortgage.




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