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Adjustable Rate Mortgages (ARMs)

Thinking about an adjustable-rate mortgage but not sure if it’s the right option for you? If you are a first-time home buyer looking for more flexibility in your mortgage, an adjustable-rate mortgage (ARM) may be the best option for you. If you intend to move in a few years or feel that interest rates will be lower in the years following the acquisition of your loan, an ARM may be advantageous. An ARM is a mortgage with a variable interest rate. This means that interest rates fluctuate with the market. Unlike a fixed-rate mortgage, ARM rates adjust to market conditions after a predetermined time period agreed upon by you and your lender.

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Understanding Adjustable Rate Mortgages

Have you wondered if an adjustable-rate mortgage (ARM) could help you afford your dream home? An ARM provides an introductory low-interest rate that makes those first few mortgage payments much more manageable than with a fixed-rate loan. But most ARMs also carry uncertainty around how high your rate – and payments – could eventually rise.
It’s smart to fully understand both the pros and cons before committing to an ARM. Here’s a brief overview of how they work, the possible advantages, and some things to consider as you weigh this type of home loan.

Potential Upsides of an ARM

While variable rates introduce risk, ARMs do provide a couple of benefits upfront:

Lower Starting Payment

The introductory teaser rate on an ARM allows a lower initial monthly cost compared to a fixed mortgage.

Savings if Rates Stay Low

If interest doesn’t climb much during your loan, you may pay less total interest over the full term versus a fixed rate. Your payments would adjust more gradually.

Temporary Housing Solution

An ARM can make sense if you plan to sell or refinance within a few years before rates are scheduled to change. You’ll enjoy lower payments at the start.

How the Rate Adjusts Over Time

ARMs will have a starter rate fixed for 3, 5, 7, or 10 years, typically. Then, based on the terms of the loan, it adjusts after a specific amount of time, usually between every 6 months to one year.
The rate is capped from rising more than a set limit at each adjustment date.

Weighing the Risks

While rates could remain stable or inch down, there’s always a chance they’ll trend up significantly too. Higher rates mean steeper monthly costs during the adjustable period that you’ll need to budget for. An ARM only works long-term if you can weather rising rates or refinance at some point. 

Make the Right Decision For Your Situation

Our experienced mortgage professionals understand both the pros and cons of ARMs. We’ll help you evaluate if an adjustable rate fits your financial situation, goals, and tolerance for risk. Don’t hesitate to contact us to discuss your options – we’re here to guide you toward the most informed choice.

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