Adjustable-Rate Mortgages (ARMs) Explained

An adjustable-rate mortgage (ARM) is a type of home loan with an interest rate that can change over time. The interest rate on an ARM is usually fixed for a certain period of time, called the introductory period, and then it can adjust up or down periodically, based on an index rate.

ARMs typically have lower interest rates than fixed-rate mortgages during the introductory period, which can make them a more affordable option for homebuyers. However, it's important to remember that the interest rate on an ARM can go up after the introductory period, which could lead to higher monthly payments.

There are a few different types of ARMs, each with its own set of terms and conditions. Some of the most common types of ARMs include:

• 5/1 ARM: This type of ARM has a fixed interest rate for the first five years, and then the rate can adjust once per year after that.
• 7/1 ARM: This type of ARM has a fixed interest rate for the first seven years, and then the rate can adjust once per year after that.
• 10/1 ARM: This type of ARM has a fixed interest rate for the first 10 years, and then the rate can adjust once per year after that.

When choosing an ARM, it's important to compare different loan terms and interest rates to find the best option for your needs. You should also make sure that you can afford the monthly payments, even if the interest rate goes up after the introductory period.

Here are some of the pros and cons of adjustable-rate mortgages:

Pros:

• Lower interest rates during the introductory period
• A more affordable option for homebuyers
• Potential for lower monthly payments

Cons:

• Interest rates can go up after the introductory period
• Higher monthly payments after the introductory period
• More risk involved

If you're considering an ARM, it's important to weigh the pros and cons carefully to decide if it's the right type of mortgage for you.

Here are some tips for choosing an ARM:

• Get pre-approved for a mortgage before you start shopping for a home. This will give you an idea of how much you can afford to borrow and what type of mortgage you qualify for.
• Compare different loan terms and interest rates to find the best option for your needs.
• Make sure you can afford the monthly payments, even if the interest rate goes up after the introductory period.
• Consider your financial situation and how long you plan to stay in the home before choosing an ARM.

If you're not sure if an ARM is the right type of mortgage for you, give us a call and we'll weigh the pros and cons with you. We can help you understand the different options available and choose the best one for your needs.