With fixed-rate home loans available at such low rates, it’s no surprise that they are so popular these days. But if you’re comparing all of your loan options before you buy, you might want to take a few minutes to understand today’s ARMs.
Why consider an adjustable-rate loan? Some borrowers opt for ARMs because the introductory rates – and monthly payments – are often lower than most fixed-rate loans.
The most common adjustables being offered today are the 7/1, 5/1 and 3/1 variety. So what do all those numbers mean? Simply put, the 7/1 adjustable remains fixed for seven years, adjusting each year afterward for the life of the loan. The 5/1 loan remains fixed for five years before it starts adjusting, and so on. Depending on economic conditions at the time your loan starts adjusting, your rate and payment could go up or down.
The decision on whether to go with an adjustable-rate loan, of course, depends on how long you plan to live in your home and how much uncertainty you can handle. If you plan on being in your home over the long term, locking into a low fixed-rate loan probably makes the most sense. But if you don’t plan to live in your house that long, an ARM might be a good option for you.
Take a look at some other ways to decide whether to go with a fixed- or adjustable-rate home loan.