4 Scenarios for Adjustable-Rate Loans

A 30-year, fixed-rate home loan isn’t right for everyone. Depending on your plans, it might actually cost you more in the long run.

Though they’re less common, adjustable-rate mortgages (ARMs) are a better fit for many homebuyers. They may offer a more affordable monthly payment and cost less in interest throughout the life of the loan.

Are you thinking of buying a home or refinancing your current one? Here are some scenarios in which you might want to consider an adjustable-rate loan:

1. You only plan to live there in the short term. ARMs are a great option if you only plan to be in the house for a few years. They usually come with lower rates than long-term, fixed-rate loans for the first five, seven or even 10 years.
   
   
2. You expect to make more money down the line. These loans tend to come with low rates upfront. Then, after a few years, your rate can change — which means a possible increase. If you know you’ll have the income to support a higher payment down the road, then an ARM might work for you.
   
   
3. You’re comfortable with refinancing in a few years. Another option would be to refinance to a fixed-rate loan during the initial period of your ARM. It would be similar to going through the home loan application process again, but you could end up with a new low rate for the long haul.
   
   
4. You plan to pay off your loan early. If you’re able to pay off the loan before your rate can rise, you may save overall. Some loans do carry prepayment penalties, but you’ll learn if your loan is one of them early in the process.

ARMs are a bit more complex than fixed-rate mortgages, so make sure to reach out for more personalized guidance.