Adjustable Rate Mortgages (ARMs) have lower initial interest rates, which can help qualify you for a larger loan amount and reduce your monthly payments.
IMPORTANT NOTE: The initial lower rate is usually just temporary, and will eventually adjust to the market rate.
Let's look at features shared by all ARMs:
SUGGESTION: ARMs may make the most sense for those who relocate frequently. Since initial rates are lower than those available with a fixed-rate mortgage, you may be moving before the mortgage gets a chance to adjust.
A feature common to some ARMs is the ability to convert to a fixed rate mortgage at some future point in time. Expect to pay for such a feature in the form of a higher rate, a fee up front, or a fee at the time of conversion. This payment may be worth it. If you take out an ARM, get the benefit of lower initial rates, and when interest rates come down, you can lock in at the lower rate. You get the best of both worlds—a cheaper initial mortgage followed by the predictability of a fixed rate later.
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