Are Adjustable-Rate Mortgages a Good Idea? What You Need to Know Before You Decide
If you’re shopping for a home loan, you’ve probably asked yourself: Are adjustable-rate mortgages a good idea?
The answer depends on your financial goals, how long you plan to stay in your home, and your comfort with changing interest rates.
How an Adjustable-Rate Mortgage Works:
An adjustable-rate mortgage (ARM) starts with a fixed interest rate for a set time — often seven or ten years. After that, the rate adjusts at regular intervals, usually once or twice a year. The initial rate on an ARM is usually lower than a 30-year fixed mortgage, which can reduce your early payments.
For example, a 7-year ARM has a fixed rate for seven years and then adjusts every six months. During those first seven years, your payment stays steady. Afterward, it can rise or fall depending on market conditions.
When an Adjustable-Rate Mortgage Can Be a Smart Move:
- You’ll move or refinance soon. If you don’t plan to keep the home long-term, you can save with the lower initial rate.
- You want to maximize buying power. A lower starting payment may help you qualify for a larger loan or keep your monthly budget manageable.
- You expect your income to grow. If your financial situation will improve, an ARM can help you save early while you’re earning less.
When an ARM Might Not Be a Good Idea:
If you plan to stay in the home for decades or you value stable payments, a 30-year fixed mortgage is safer. An ARM could lead to higher payments once the fixed period ends, and that risk can strain a tight budget.
Bottom Line:
So, are adjustable-rate mortgages a good idea? They can be — but only if they match your plans and risk tolerance. If you expect to move or refinance before the rate adjusts, an ARM can save you money. But if you want peace of mind and predictable payments, a fixed-rate mortgage may fit better.
At Houzd Mortgage, we’ll compare both options and help you choose the loan that fits your life and goals.