Conventional wisdom may have given you the idea that adjustable-rate mortgages, or ARMs, are ill-advised gambles as opposed to the safer, more stable fixed-rate mortgage loans. However, there are several factors to consider before choosing which loan makes more sense for you.
How long do you intend to stay in your current home? If you plan to relocate in less than 10 years, a 5-year or 7-year ARM could be a great deal for you. For example, if you apply for a 5-year ARM, your initial rate will be locked in for the first five years (generally out of a 30-year overall term).
Most of the time, you can qualify for a substantially lower ARM interest rate compared to the lowest fixed rate available to you. If you then sell the house after five years, you will have saved thousands of dollars on monthly mortgage payments compared to 30-year fixed monthly payments.
In addition, there is no crystal ball telling where interest rates could go in the future. If, five or seven years down the road, rates happen to drop lower than when you initally locked the loan, your ARM will also adjust lower, saving you more money.
Of course, rates could also move the opposite direction, increasing your ARM payment...but then, why not refinance again? Remember you have the freedom to refinance your mortgage whenever you choose, opting into either a fixed-rate or ARM loan.
Still unsure? Consult a Vertex loan advisor to decide what plan might work best for you.
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