Adjustable Rate Mortgage (ARM) – Definition, Pros and Cons

When applying for a mortgage loan, there are many different loan products and several factors to consider. One of the key defining factors is whether to choose a fixed or an adjustable rate mortgage, commonly known as an ARM. An adjustable-rate mortgage (ARM) is a loan term option with interest rates that can change periodically after the initial fixed-rate period. After this introductory period, monthly payments are susceptible to increases or decreases based on market fluctuations, which can also affect the monthly payment.

Here are the pros and cons of adjustable rate mortgage or arm, and the right choice will differ between each borrower and their unique scenario.

PROS

• Lower initial monthly payments

• Possibility to qualify for higher loan amounts

• Interest rates and payments may decrease based on the index rate

• Good option for buyers who are planning on living in their home for only a few years

CONS

• Your interest rates could unexpectedly increase

• Your interest rates are dependent upon the market

• Risk of defaulting if interest rates dramatically increase

• Terms and conditions of the loan program can be more difficult to understand

Of course, your Fairway loan officer is always available to discuss these pros and cons with you to determine which option best fits your financial profile. To get started, find a loan officer near you or click here to start the pre-approval process!

Reference: https://fairwaynewengland.wordpress.com/2020/01/10/adjustable-rate-mortgage-arm-definition-pros-and-cons/