Adjustable Rate Mortgages are mortgages where the lender adjusts the interest rate each month or at an interval agreed upon by lender and borrower. If rates go down the borrower enjoys the benefits of paying less interest plus paying more off the balance providing the payment remains the same. If rates increase the lender enjoys the benefit of more interest at the expense of the borrower. This type of loan can be be a blessing and a curse. It is a fair gesture by a lender however verifying the balance owing at any time is extremely difficult unless the borrower has the appropriate financial software, such as MORTGAGE2 PRO.

Adjustable rate mortgages (ARM) and variable rate mortgages are different names for the same thing. Americans call them ARMs and Canadians call them variable rate mortgages.

Adjustable rate mortgages can yield tremendous savings to borrowers but the chore of verifying the changing amortization schedule can be overwhelming to a novice who is unfamiliar with amortization schedules. Some lenders will change the rate every month and leave the payment constant. Some lenders will recalculate the payment each month based upon the new rate and this type of ARM is very time consuming. It has been estimated that in North America, Billions of dollars each year in excessive interest is paid to lenders that make errors calculating ARMs. An added problem is, if the errors are at the beginning of the schedule they compound themselves throughout the entire schedule. Unless you verify the calculations you will never know.

The changing rates can be simply typed directly into the amortization SPREADSHEET (yellow column) and the entire schedule is instantly recalculated, as in the example below.