- Adjustable rates are usually expressed as the amount of years the rate is fixed over the amount of years it is adjustable. A 3/27 loan will have a fixed rate for three years. followed by an adjustable rate for 27 years.
- Adjustable rates are specified as a benchmark plus a margin. Benchmarks are usually based on benchmarks such as the value of the Monthly Treasury Average Index or the London Interbank Offered Rate. The lender determines the margin on top of that.
- The major risk of an adjustable rate is that it will dramatically change, making once-affordable mortgage payments unaffordable. For this reason, adjustable mortgages are best if you expect to sell the house relatively soon, preferably before the interest rate starts adjusting.
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