An Adjustable-Rate Mortgage (ARM) is a home loan that begins with a fixed interest rate for a set period of time before the rate can adjust periodically based on market conditions. Popular ARM options include 5/6, 7/6, and 10/6 ARMs, where the first number represents how long the initial rate remains fixed and the second number indicates how often your rate can change afterward.

While fixed-rate mortgages keep the same interest rate for the life of the loan, ARMs offer an initial fixed period followed by potential rate adjustments. Because of this structure, ARMs often start with lower interest rates than comparable fixed-rate mortgages. Check out seven reasons why an Adjustable-Rate Mortgage may be worth considering.

One of the biggest advantages of an ARM is the opportunity to secure a lower interest rate (for a temporary period of time) compared to many fixed-rate mortgage options.

By securing a lower rate at first, you can reduce your monthly mortgage payment during the introductory period and create additional flexibility within your budget.

For some borrowers, the savings generated during the fixed-rate period can be substantial, especially during the early years of homeownership when expenses such as moving costs, furnishings, and home improvements are often highest. An ARM allows you to take advantage of those savings to take care of those expenses.

A lower interest rate translates into a lower monthly principal and interest payment.

The reduced payment can provide additional room in your budget for savings, investments, home improvements, emergency funds, or other financial goals. For many homeowners, improving monthly cash flow, even if it is for a temporary period, is one of the primary reasons to explore an ARM.

This can be especially helpful for borrowers who expect their income to increase over time or who simply want more financial flexibility during the first several years of their loan.

A lower monthly payment may allow some borrowers to qualify for a larger loan amount than they could with a higher-rate fixed mortgage.

This additional purchasing power can expand your home search and potentially open the door to neighborhoods, school districts, or home features that may have previously been outside your budget.

While purchasing power should not be the sole reason for choosing a mortgage product, it’s an important consideration for buyers navigating competitive housing markets.

Not everyone plans to stay in their home for 30 years.

If you expect to move, relocate for work, upgrade to a larger home, downsize, or sell the property before the fixed-rate period ends, an ARM may be worth considering.

For example, a borrower purchasing a starter home and planning to move within five to seven years may never experience an interest rate adjustment. In that scenario, they could potentially benefit from the ARM’s lower introductory rate throughout their ownership period.

ARMs are available in a variety of structures designed to fit different homeownership timelines.

Some common examples include:

• 5/6 ARM
• 7/6 ARM
• 10/6 ARM

The initial fixed-rate period gives borrowers the ability to choose a mortgage that aligns with their financial goals and anticipated time in the home.

Someone planning to move in six years may have very different needs than someone who expects to stay for ten years.

Many borrowers worry that their rate could increase significantly after the fixed period ends. Fortunately, most ARM programs include rate caps that help limit how much the interest rate can increase.

These caps typically include:

• Initial adjustment caps
• Periodic adjustment caps
• Lifetime caps

These features help provide safeguards against increases and create more predictability for homeowners. Additionally, you could always refinance following the initial fixed-rate period to see if you can lock-in an interest rate that’ll provide savings over the life of your loan.

An ARM can be a powerful financial tool when used strategically.

Borrowers who prioritize lower initial payments, expect future life changes, anticipate increased earnings, or plan to move within a specific timeframe often find that an ARM aligns well with their goals.

Those who want to pursue this option and currently have a fixed-rate mortgage, can turn their loan into an ARM through a refinance! Be sure to contact one one of our Home Loan Experts to learn more at 877.715.9908.