An adjustable-rate mortgage (ARM), has an introductory interest rate for a fixed period followed by annual adjustments after that—typically whatever remains on a 30-year overall term. For example, a 5/1 ARM has a fixed rate for five years followed by annual adjustments for the remaining 25 years. The initial rate on an ARM is lower than a comparable fixed-rate mortgage, allowing homeowners to capitalize on a lower monthly payment during the early years of home-ownership. ARMs are often considered riskier as your interest rate has the chance of going up after the initial fixed-rate period ends.
If your top priority is minimizing your monthly payment, an ARM may be right for you. A winning scenario would be to capitalize on an adjustable-rate mortgage would be if you only plan to stay in your home for a short period where you plan on selling your home before your initial mortgage rate adjusts.
ARM rates can be lower than a 30-year fixed rate and do have safety nets such as fixed initial terms and adjustment rate caps to offer extra protection. If you are wondering if an adjustable-rate mortgage is right for you, contact our team today, and we will help you evaluate the pros and cons.