An adjustable-rate mortgage (ARM) is a type of home loan where the interest rate can change over time. Many buyers consider ARMs because they often begin with a lower interest rate than a fixed-rate mortgage, making the loan more affordable at the start. However, since the rate can adjust later, your monthly mortgage payment may increase or decrease depending on the market.
How Adjustable-Rate Mortgages Work
When reviewing ARM loan options, you’ll often see numbers such as 5/5 ARM or 10/1 ARM. These numbers show how the loan is structured:
Because of these adjustments, ARMs may not be ideal if you prefer predictable monthly payments. Still, there are several potential advantages of an ARM loan:
Lower initial interest rate: ARMs typically start with a lower rate, which can help you save money early on.
More buying power: With a lower starting rate, you may qualify for a higher-priced home while keeping payments within budget.
Potential to benefit from lower market rates: If rates go down, your ARM could adjust downward—without refinancing.
Flexibility for short-term homeowners: If you plan to move within a few years, you may benefit from the lower initial rate without worrying as much about future adjustments.
Is an ARM Loan Right For You?
Choosing between an adjustable-rate mortgage and a fixed-rate mortgage depends on your financial goals, how long you plan to stay in your home, and how comfortable you are with the possibility of changing payments.
If you’re considering your mortgage options, our expert mortgage advisors can walk you through the details an help you decide whether an ARM is the right fit.
