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Adjustable-Rate Mortgage (ARM) Information: Is an ARM Right For You?

Whether it’s a starter home or your dream vacation home, buying a home is always an exciting event. And just like there are different types of homes to choose from, there are also various mortgage loan types, all of which offer unique advantages and disadvantages.

While some homebuyers look for predictable payments and fixed rates, others benefit more from the features of an adjustable-rate mortgage (ARM) loan. The adjustable rate mortgage is not for everyone, but if you answer yes to the following questions, an ARM loan may be the best choice for your financial situation. Read our ARM information below to find out more about this mortgage loan option.

Are you planning on owning your new home for a short time?

An ARM is usually a good choice if you plan to own your home for three to 10 years. For example, perhaps you’re in the market for a starter home that you‘ll eventually outgrow, or your kids will be moving out soon and you’ll be downsizing.

Introductory adjustable mortgage rates are generally lower than other types of loans, so in these scenarios you’ll have a lower payment and then sell the house before your rate adjusts and your monthly payment increases.

Would you benefit from short term financial relief?

Choosing an adjustable rate mortgage will usually result in lower initial monthly payments than a fixed rate loan. Those lower initial monthly payments can provide some financial relief by allowing you to pay off other types of debt, such as credit card balances or an auto loan.

The introductory period can last anywhere from a few months to 10 years, depending on your loan. At the end of the introductory period, a higher interest rate will take effect. Most homeowners sell their home or refinance their loan once the introductory rate expires, but you don’t have to.

Do you follow market and real estate trends?

Since ARM rates change over time, you can take advantage of competitive market rates by following real estate trends. During adjustment periods that are built into an ARM rate term, your rate can increase or decrease.

Following fluctuating market conditions can help you figure out whether an ARM loan is right for you. When interest rates are lower, you may be able to save on your monthly mortgage bill. And even if rates go up, there’s a cap in place that will prevent your interest rate from exceeding a certain rate that’s listed in your mortgage documents.

Do you typically pay more than necessary on your debt?

Just like you can reduce the amount you spend on interest by paying more than your monthly minimum credit card payment, any extra amount paid toward your ARM loan principal will save you money in interest over time. And since there are typically no penalties for paying off an ARM early, this is a simple way to pay it off faster.

For more adjustable rate mortgage information and to help you decide if an ARM is best for your situation, use an adjustable mortgage calculator from Nationwide Bank® and get help from a financial professional.