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Should you be scared of an adjustable rate mortgage today?

By: Lorene Turnquist

03/06/2017

What is your reaction when you hear “Adjustable Rate Mortgage”?

No secret loan rates are rising and they are projected to go up even more over the next few years. But does that mean adjustable rate mortgages (called ARM) are bad? Not at all. An ARM can still be a good choice for some folks.

It is important to understand your financial goals and discuss these with your loan officer. For example, how long do you plan to stay in your house? If you’re planning to move in the next 10 years, an ARM may be an excellent fit. You can save money on your monthly payment and overall interest because and ARM generally will have a lower rate than its fixed rate counterpart. Consider the features of a 10/1 ARM. The “10” means that the rate is fixed for the first 10 years. The “1” means the rate can adjust every year after year 10. Keep in mind ARM are highly regulated and consumer safe mortgage products and have periodic and lifetime interest rate change caps.

There are 3/1, 5/1 and even 7/1 ARM products. By taking a little time up front to consider your long-range plans and discussing these with your loan officer, you will understand the numbers and the potential risks. And then you are prepared to make an educated decision.

So, the moral of the story here is don’t be freaked out by adjustable rates, even in a rising rate environment. For many borrowers they are a great tool to save money!

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