Should You Consider an Adjustable Mortgage (ARM)?

An ARM offers attractive benefits for buyers seeking ways to reduce the price of entry into the housing market. A typical ARM starts with a lower fixed rate for 3–10 years. After that introductory period ends, the rate adjusts based on market conditions.

Here's an example of a common 5/1 ARM with a 5% cap. After five years, the rate adjusts once per year, but not by more than five percentage points above your initial rate. ARMs make sense for some home buyers who plan to repay their loan or sell before the end of the introductory period. However, ARMs can be complicated. Be sure to discuss the fine print with a trusted mortgage provider. Risk-averse buyers may prefer a fixed-rate mortgage where the interest rate remains the same for the life of the loan, regardless of what's happening in the market.

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