What Is an Adjustable-Rate Mortgage (ARM)?
An adjustable-rate mortgage is a home loan where the interest rate starts lower than most fixed-rate loans but can change over time. After an initial fixed period (often 3, 5, 7, or 10 years), the rate adjusts periodically based on market conditions. That means your monthly payments could go up or down, making ARMs less predictable but often cheaper in the early years.
Who Is It Best For?
ARMs are best for people who don’t plan to stay in their home for more than a few years or expect their income to rise in the future. They’re also a good fit if you want a lower payment upfront and are comfortable with the risk that your rate — and payment — could go up later.
Who Should Think About It Twice?
If the thought of your monthly payment going up makes you nervous, an ARM might not be right for you. They can get expensive fast once the fixed period ends, so if you don’t have room in your budget for possible increases, a fixed-rate loan may be safer.
Pros and Cons
| Pros | Cons |
|---|---|
| Lower initial interest rates than fixed loans | Payments can rise after the fixed period |
| Good option if you plan to sell or refinance soon | Harder to budget long-term since rates change |
| May allow you to qualify for a larger loan | Risk of higher payments if market rates climb |
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