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Prospective homeowners face a crucial decision when choosing between fixed-rate mortgages (FRMs) and adjustable-rate mortgages (ARMs). While ARMs have a controversial reputation following the 2008 housing crisis, financial experts suggest there are specific scenarios where they might be the right choice for certain borrowers. Here’s what you should know about how adjustable-rate mortgages work, and when they might be the right call for you.
When an adjustable rate mortgage could make sense
The primary appeal of ARMs lies in their lower initial interest rates compared to fixed-rate mortgages. These introductory rates typically last between three and 10 years, offering significant savings during the early years of homeownership. Chad Gammon, CFP and owner of Custom Fit Financial, explains that this lower initial rate can be particularly advantageous for homeowners who anticipate either income growth or falling interest rates during the loan period.
However, Gammon emphasizes the importance of understanding the risks:
Is It Ever a Good Idea to Opt for an Adjustable Rate Mortgage?
