Why Now is a Great time to Choose an Adjustable-Rate Mortgage (ARM)

It’s tough to ignore the news of rising interest rates, and that has some people looking for other options when it comes to buying or refinancing a home. Fixed-rate mortgages have increased quite a bit over the past few months, and that’s why, for some, an adjustable-rate mortgage, or rather ARM, makes sense.

It’s especially true if you think you might refinance or sell before the interest rate adjusts. That makes an ARM a good option for short-term home purchases because during the time you have the home, you’re making lower payments.

There are quite a few pros when it comes to adjustable-rate mortgages.

• Lower interest rates in beginning
• Potential for lower rates in future if rate goes down

Even if the rate does increase in the future, you could also find you’re in a better financial situation, making the rate hike easier to absorb. You may even find you’re able to get an ARM now but convert to a fixed-rate mortgage later.

Unlike a traditional fixed-rate mortgage, your rate will change over time with an ARM, but that’s determined by the terms of your contract. That’s why an adjustable-rate mortgage could mean you eventually end up spending more money, because you don’t have a rate locked in.

There are three common types of ARMs.

Hybrid ARM

With a hybrid ARM, you may be able to get an initial fixed rate for three, five, seven, or even 10 years before it resets. After that fixed-rate period is up, the rate adjusts, sometimes once a year. It could also be every six months following the initial fixed-rate period.

Interest-only ARM

There’s also the option for an interest-only ARM. With this type of adjustable-rate mortgage, you only make interest payments in the beginning, but the loan balance doesn’t decrease. At the end of that period, your monthly mortgage payment goes up.

Payment-option ARM

• Another type is the payment-option ARM. You can typically choose from either a
• Interest-only payment
• Limited payment
• Standard principal & interest payment

Experts saw demand for ARMs hit a 14-year high this past spring when fixed rates went over five percent. As with any type of mortgage, it helps to shop around for the best rate.

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