What You Should Know About ARMs

Fixed-rate mortgages are the most common home loan type — and for good reason. They offer consistency with a locked-in rate and monthly payment for the life of the loan. But fixed isn’t the only option available.

An adjustable-rate mortgage, or ARM, might also be worth considering depending on your circumstances. Here’s how it works.

Adjustable-Rate Mortgages Explained

ARMs have an interest rate that adjusts over time. Your loan starts with a fixed-rate period, typically five, seven or 10 years. Once that period ends, the rate adjusts every six to 12 months, depending on the terms of your agreement and the state of the market. As rates fluctuate, so do your monthly payment costs.

Pros and Cons

The key benefit of ARMs is that they usually start with a lower rate than traditional fixed-rate mortgages. This means you can save on interest and pay down principal faster initially. But once the adjustment period begins, your rates could rise, increasing your monthly costs. ARMs may also be subject to prepayment penalties if you decide to sell early or refinance to get a lower rate.

When ARMs Make Sense

• You can get a lower rate and save on interest and monthly expenses for the first few years of the loan.
• You expect to have the income to cover potential rate and cost increases once the adjustment period begins.
• You plan to sell or refinance during the initial payment period.

Current Market Considerations

ARMs aren’t right for everyone, but understanding how they work can help you make an informed decision. If you’re exploring your mortgage options, it’s a good idea to learn about both fixed and adjustable loans before deciding which path fits your plans.

Ready to discuss your financing options? Reach out for more personalized guidance.