As mortgage rates have risen in recent months, many buyers are now turning to the Adjustable Rate Mortgage (or ARM) in order to lock in a low interest rate over a five, seven or ten year period. As many as 40% to 50% of all buyers are now choosing an ARM over a fixed-rate mortgage, based on our recent conversations with local lenders.
Why would you choose an adjustable rate mortgage?
An ARM allows you to lock in a lower monthly payment during the initial period of your loan. For example, with a 7-year ARM, during the first 7 years of your loan you would lower your interest rate by a full percentage point compared to the traditional 30-year fixed rate mortgage. After the initial 7 years is up, your rate would adjust subject to market conditions and the maximum rate established for your product.
An ARM can make a lot of sense if you know you won't be buying your forever home and that you'll be selling your home within 5 to 10 years. It can also make sense if you expect your income to grow steadily over time.
How much could you save on your monthly payment?
Here's how much you could save at various loan amounts, according to rates quoted by UW Credit Union as of July 30th, 2022.
How can you learn more about the pros and cons of an ARM?
Please reach out to us, and we'll be happy to connect you with a great local lender who will help you understand the pros and cons of both adjustable and fixed-rate mortgages, now that rates have risen above historic lows. In the meantime, this resource from Summit Credit Union shares current mortgage rates for a wide variety of loan products. Depending on the specific loan product you choose, you could potentially save hundreds of dollars each month by going with an adjustable rate mortgage.
