Adjustable rate mortgages (ARMS) are a great loan product during higher rate environments or for home buyers who plan to sell or refinance their home between 3 and 7 years. Adjustable rate mortgages (ARMS) are fixed for periods of 5-10 years. After that period, your interest rate will either go up, or down depending on market conditions and mortgage rates at that time.
Fixed-rate loan or an ARM loan?
ARM loans will have lower rates and ultimately lower monthly payments than fixed-rate loans, but interest rates could go up or down once the initial rate term has expires. So while ARM’s provide lower rates, conventional fixed rate loans provide security in knowing your mortgage payment won’t ever go up.
5-year ARM loans
5/1 ARMS will typically provide the lowest possible rates and monthly payments during the initial rate period. ARM’s are preferred by borrowers that tend to sell the home in 3-5 years or planning on refinancing at the end of the rate period.
10-year ARM loans
10 Year Arms are popular because they provide lower rates as well as provide for more long term security in locking in a 10 year rate.