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Adjustable-Rate Mortgage Loan

Providing Flexibility for Homeowners

Adjustable-rate mortgage loan (ARM Loan) is a term loan option where the interest rate can change periodically after the initial fixed-rate period. After this introductory period, the interest rate associated with the mortgage loan is susceptible to increases or decreases based on market fluctuations, ultimately affecting your monthly mortgage payment.

What Is an Adjustable-Rate Mortgage?

An adjustable-rate mortgage loan is any home loan where the interest rate can change periodically after its initial fixed-rate period. The increases or decreases in the mortgage rate after the initial fixed-rate period are dictated by fluctuations in the market, so it is hard to tell what your interest rate on the loan will be after the initial period.

Keep in mind, the term “adjustable-rate” describes differences in loan term, not necessarily loan type. You can get a Conventional ARM loan, an FHA ARM loan, VA ARM loan or USDA ARM loan, just like you can with fixed-rate home loans.

Adjustable-Rate Mortgage FAQs

When is an adjustable-rate mortgage a good idea?

Most consumers choose to go with a fixed-rate mortgage over an adjustable-rate mortgage (ARM loan), because of the predictability that is baked into a fixed interest rate over the course of the loan. However, if mortgage rates in the market are relatively high at the time you are home shopping, or if you know that you are only going to live in the home for a few years (fewer than the length of the introductory fixed-rate period of the ARM you are considering), then an ARM loan might be the right home loan solution for you. As always, though, it is important to weigh the pros and the cons of fixed-rate mortgage programs vs. ARMs with your Fairway mortgage advisor, as every individual’s situation is unique.

Should I get an adjustable-rate mortgage or a fixed-rate mortgage?

Most homebuyers opt for a fixed-rate mortgage due to the predictability and perceived security that brings. With a fixed-rate mortgage, you always know how much interest you will pay over the life of the loan. In a low-interest rate atmosphere, a fixed-rate mortgage might be the best bet, because it locks in that low interest rate for the life of the loan. When interest rates in the market are relatively high, perhaps an adjustable-rate mortgage (ARM loan) is worth considering.

If you think you will stay in the home you are purchasing for the entire life of the home loan, you might be more likely to select a fixed-rate mortgage, again due to the predictability of knowing exactly how much interest you will pay for the loan. But if you think you might move or refinance in a certain number of years, an ARM loan might prove advantageous in these cases. But, as in all cases, it is a good idea to talk these decisions over with your Fairway mortgage advisor up front.

Adjustable-rate Mortgage vs. Fixed-rate Mortgage Highlights

We have described the differences between the two types of mortgage loans at length, but here are the highlights:

  • Fixed-rate mortgages provide more of a sense of predictability and security.
  • ARM loan interest rates remain fixed for the introductory period (either five, seven or 10 years).
  • Fixed-rate home loans show exactly how much interest you will pay over the life of the loan.
  • If mortgage rates go down, with an ARM loan you will see that benefit reflected in your new rate.
  • You may be able to qualify for a higher loan amount with an adjustable-rate mortgage loan.

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