Question

ARM allows banks to transfer their interest rate risk to the borrowers. In what circumstances, ARM might be a good choice for borrowers?

Answer 1

Answer-

Adjustable-rate mortgages (ARMs), also known as variable-rate mortgages, have interest rate that may fluctuate or change over a period which dependson changes in  financial index rate that's linked with the loan. In general the EMI payments will increase or decrease if the index rate moves up or down. ARMs come with the home loans that have floating rate interest.

The ARM might be beneficial in case the interest rate risk is transferred to borrowers in the case if

One anticipates that the interest rates may go down.
One decides to plan before the fixed rate period is set as one may not be affected by the interest rate changes.
One who is looking for EMIs that are lower than the fixed rate mortgages that is offerred by the banks or financial institutions.