Answer
The advantage of adjustable rate mortgage is that the monthly payment will be lower as bank initially lends money at the lower rate of interest as the buyer is taking the risk, whereas the disadvantage is the buyer may get benefited from a lower payment initially but if the interest rate rises then the monthly payment will be increased significantly.
Work Step by Step
The mortgage is a legal agreement/contract, wherein any bank/financial institution grant money at the prescribed interest rate in exchange for debtor’s asset. The mortgage becomes void when the debtor pays the amount of mortgage along with the interest up to the period the money is borrowed. Interest is paid by the borrower regularly over the period above the principal repayment.
Adjustable rate mortgages are the interest rate on the mortgage loan, which changes with the changes as per the market scene. They are a bit riskier than the fixed rate.
