Is An ARM Right for You?

If you’re currently shopping for a mortgage, you may be considering an adjustable-rate mortgage, or ARM. While an ARM may provide a lower interest rate during the first years of your mortgage, the long-term scenario will be different than what a fixed-rate loan offers you.

• ARMs often have a 30-year term, like fixed-rate mortgages. However, the interest rate can change more than once.
• During the first years of the ARM’s term, the rate will not change. Adjustments begin according to the structure; for example, a 5/1 ARM offers a five-year initial rate, before adjusting every year.
• ARMs are popular with borrowers who expect to move again in a short period of time, or whose household income will be increasing soon.
• Refinancing an ARM to a fixed-rate mortgage before the first adjustment may lock in an affordable rate, but this is not guaranteed.
• The ARM’s interest rate is based on an index rate like the Secured Overnight Financing Rate (SOFR), with a margin added to the index.
• An ARM features three rate caps. These determine how much the loan’s interest rate can increase during the first adjustment, additional adjustments, and during the life of the loan.

If you’re considering an ARM for your next home purchase, contact me for an informative chat and a possible referral to a trusted mortgage broker.