3/27 Adjustable-Rate Mortgage (ARM)

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Definition of '3/27 Adjustable-Rate Mortgage (ARM)'

A 3/27 adjustable-rate mortgage (ARM) is a type of mortgage loan that has a fixed interest rate for the first three years of the loan term, followed by an adjustable rate for the remaining 27 years. The interest rate on an ARM is typically tied to an index, such as the LIBOR (London Interbank Offered Rate), and can change at regular intervals, usually every six months.

The initial fixed rate on a 3/27 ARM is typically lower than the rate on a fixed-rate mortgage, which can make it an attractive option for borrowers who are looking for a lower monthly payment. However, it is important to be aware that the interest rate on an ARM can increase significantly over time, which could lead to higher monthly payments.

Before you decide whether a 3/27 ARM is right for you, it is important to compare the different types of mortgages available and to understand the risks and benefits of each type. You should also get pre-approved for a mortgage from a lender so that you know how much you can afford to borrow.

Here are some of the pros and cons of a 3/27 ARM:


* Lower initial interest rate than a fixed-rate mortgage
* Potential for lower monthly payments
* Flexible repayment options


* Interest rate can increase significantly over time
* Monthly payments can increase significantly over time
* Potential for negative equity

If you are considering a 3/27 ARM, it is important to carefully weigh the pros and cons before making a decision. You should also make sure that you understand the terms of the loan and that you are comfortable with the potential risks.

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