What is an ARM?

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.

Is an ARM right for you?

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.

For more information, contact one of our loan origination specialists today.