Adjustable-Rate Mortgages: Pros and Cons

If you're in the market for a new home, you may have heard of an adjustable-rate mortgage (ARM). Unlike a fixed-rate mortgage, which has the same interest rate throughout the life of the loan, an ARM has an interest rate that can change periodically. This article will explore the advantages and disadvantages of this type of mortgage.

Pros of an Adjustable-Rate Mortgage

One of the main benefits of an ARM is that the initial interest rate is typically lower than that of a fixed-rate mortgage. This means that you'll have lower monthly payments at the beginning of the loan. Depending on how long you plan to keep the house, you may be able to save a significant amount of money.

Cons of an Adjustable-Rate Mortgage

Another advantage of an ARM is that it can be a good option for people who plan on selling their home in the near future. If you only plan on living in the house for a few years, you may be able to take advantage of the lower interest rate and sell the home before the rate adjusts.

On the other hand, one of the main disadvantages of an ARM is that the interest rate can increase over time. This means that your monthly payments can also increase, which can be difficult to budget for. Additionally, if you plan on staying in the home for a long time, you may end up paying more in interest over the life of the loan.

Another potential downside of an ARM is that it can be more difficult to refinance. If interest rates rise and you want to refinance to a fixed-rate mortgage, you may have trouble qualifying for a new loan.

In conclusion, adjustable-rate mortgages can be a good option for some homebuyers, but they're not for everyone. When deciding whether an ARM is right for you, consider your financial situation, your future plans, and your ability to handle potential increases in interest rates.