As we’ve seen an uptick in interest rates, many homebuyers are now looking into adjustable-rate mortgages (ARMs). ARMs were very popular in the early 2000s but with our extremely low rate recent history, very few home buyers were choosing ARMs. Now with higher rates many home buyers are looking into ARMs again.
First a brief overview on what ARMs are – unlike your traditional fixed rate mortgage, ARM loans have interest rates that can change. Normally with lower initial interests for a few years that then “adjust” based on the current market rate. So a 3/1 ARM will have a lower fixed rate for three years and then adjust annually after that. A 7/1 ARM is for seven years etc.
The primary benefit of ARMs are the lower initial interest rate and thus lower initial monthly payments. ARMs are attractive if you aren’t planning on living in the house for a long period. ARMs are a popular option on jumbo loans as well. Of course you’ll need to be comfortable with the risk and uncertainty of higher possible rates in the future. If you want to know more about ARMs and your options schedule a consultation on our website.
