When shopping for a mortgage, you have a variety of options. Mortgages can be structured differently and many factors are negotiable, such as the interest rate, closing costs, the loan’s length, a pre-payment penalty, and a balloon payment, to name a few.
One type of loan that has recently become popular is the ARM, or adjustable rate mortgage. On this loan, the interest rate starts out very low and adjusts over time according to an interest index, such as the LIBOR (London InterBank Offered Rate). Typically, the interest rate adjusts up because a margin is added to whatever current rates are.