Adjustable-rate mortgages (ARMs) have come a long way, yet many homebuyers don’t even consider them due to outdated or misleading information that has tarnished their reputation.
The reality? ARMs can be a smart, flexible loan choice — especially in today’s high-priced real estate market.
Let’s set the record straight and reveal the facts versus the myths. It could be an ARM is worth a second look.
Myth No. 1: “An ARM means my rate will only go up.”
Fact: While your rate can adjust up, it can also adjust down if market rates decrease. That means you could benefit from a lower payment in the future — without needing to refinance.
Myth No. 2: “ARMs are risky because my payment will be unpredictable.”
Fact: ARMs start with a fixed period — usually five, seven or 10 years — and your rate doesn’t change. After that, adjustments happen based on market conditions, but there are caps that limit how much your rate can increase at each adjustment. And if rates drop, your payment could decrease too.
Myth No. 3: “I’ll be stuck with whatever rate I get after it adjusts.”
Fact: If rates go down, your ARM could adjust to a lower rate. But if rates rise, you have options. For instance, you can refinance into a fixed-rate loan or make extra payments while your rate is low to reduce future costs.
Myth No. 4: “Fixed-rate mortgages are always the better option.”
Fact: Fixed-rate mortgages provide long-term stability, but they often come with higher rates upfront. If you plan to move, sell or refinance in the next 5-10 years, an ARM can help you save money now and give you flexibility if rates change.
Myth No. 5: “ARMs are only for short-term buyers.”
Fact: ARMs work for many types of homebuyers. If you want to keep your options open and benefit from lower initial payments, an ARM could be a smart choice — even if you plan to stay in your home longer. If rates drop, your payment could decrease, and if they rise, you can explore refinancing when the time is right.
Is an ARM Right for Your Circumstances?
When you’re shopping for a mortgage, don’t count ARMs out. An ARM may be right for you:
- If you want to benefit from a lower interest rate and initial savings.
- If you plan to move within the fixed-rate period to get lower interest rates and potentially lower payments for a shorter period.
- If you know your income will increase over time to absorb higher payments if necessary.
Discuss your financial circumstances and homebuying needs with an experienced loan consultant who can help you determine if an ARM is right for you.1
1. All loans subject to approval.