Summer is one of the busiest times of the year for homebuyers, and with mortgage rates remaining elevated, many are looking for ways to make homeownership more affordable.
As part of KPRC 2’s weeklong series on navigating the homebuying process, we’re taking a closer look at adjustable-rate mortgages (ARMs) and who may benefit from choosing one over a traditional fixed-rate loan.
What is an adjustable-rate mortgage?
An adjustable-rate mortgage, or ARM, typically offers a lower interest rate than a traditional fixed-rate mortgage during an initial introductory period, often the first five years.
For example, with a 5/1 ARM, the interest rate remains fixed for the first five years. After that, the rate can adjust once a year based on market conditions, meaning monthly mortgage payments could increase or decrease.
According to mortgage expert Charles Villafana, ARMs are often a good option for buyers who don’t expect to stay in their home long term.
Who should consider an ARM?
An adjustable-rate mortgage may be a good fit for:
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First-time homebuyers
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Buyers who plan to move within five years
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Homeowners expecting to relocate for work or upgrade to another home
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Buyers looking to take advantage of lower initial monthly payments
Because the introductory interest rate is typically lower than a 30-year fixed mortgage, borrowers can save money during the first several years of the loan.
Who should avoid an ARM?
Experts say adjustable-rate mortgages are generally not the best choice for buyers purchasing their “forever home.”
If you expect to live in your home for 10, 20 or even 30 years, a traditional 30-year fixed-rate mortgage may offer more financial stability.
While fixed-rate mortgages often come with a higher interest rate upfront, currently averaging around 6.5%, according to KPRC 2’s reporting, the interest rate remains the same for the life of the loan, providing predictable monthly payments.
More homebuying tips coming this week
KPRC 2’s homebuying series continues throughout the week with practical advice for homeowners and renters.
Coming up:
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Thursday: How home equity loans can help homeowners consolidate debt at a lower cost than many credit cards.
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Friday: How to spot rental scams and protect yourself from losing money while searching for a place to live.
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