What is a discretionary ARM?


A discretionary ARM is a type of a home loan that does not exist in the US. It is an adjustable rate mortgage whose rate can change at the lender's discretion. That is, the lender can change the rate any time they deem it necessary after a short introductory period - borrowers will be notified about the interest rate change up to six weeks before the new rate comes into effect.

Where do discretionary ARMs exist?

Discretionary ARM mortgage loans do not exist in the U.S. Rather, they exist in the UK, Australia and India, to name a few of the countries using them as a primary home loan instrument.

In comparison to discretionary ARM home loans, US ARM loan rates are calculated automatically by software, which is fed with all the ARM terms.

Also, the most interesting part of discretionary ARMs is that they may have no caps whatsoever - US ARM loans, however, have either lifetime or periodic adjustment caps to protect borrowers.

Discretionary ARM home loans also have very short introductory period before the rate is changed. In comparison, US ARM home loans can have a very long introductory period - sometimes as long as 7 or even 10 years.

Mortgage rates hit their lowest since 1955. Ask the home loan experts we recommend Quicken Loans how to take advantage of them.
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