Adjustable Rate Mortgage

Lower
Initial Rates

ARMs usually start with a lower interest rate than fixed-rate loans, which can mean smaller payments during the early years.

Flexibility

If you know you’ll move, sell, or refinance before the adjustment period, an ARM can save you money up front.

Short-Term Advantage

Great for buyers who plan on short-term ownership or want to maximize affordability while building equity.

Understanding Adjustable-Rate Mortgages

An adjustable-rate mortgage, or ARM, is a type of home loan where the interest rate changes over time. Unlike a fixed-rate mortgage, which keeps the same rate for the life of the loan, an ARM typically begins with a lower introductory rate. After this initial period, the rate adjusts at set intervals based on market conditions.

For many borrowers, ARMs can be a smart financial tool — especially if you plan to sell, refinance, or relocate within a few years.

Pros and Cons of Adjustable-Rate Mortgages

Pros

  • Lower initial monthly payments compared to fixed-rate loans.

  • Can qualify buyers for a larger home with lower starting rates.

  • Ideal for short-term homeowners or those planning to refinance.

Cons

  • Payments may increase when the rate adjusts.

  • Less predictable long-term budgeting compared to fixed-rate loans.

  • Market conditions can cause rates to rise significantly.

Refinancing and How ARMs Work

Yes, you can refinance an adjustable-rate mortgage just like any other loan. Many borrowers choose to refinance before their rate adjusts, often switching into a fixed-rate loan for more stability. To qualify, lenders typically look for solid credit, at least six months of ownership, 20% or more equity, and a healthy debt-to-income ratio.

An ARM’s rate is determined by three main factors:

  • Rate Caps – Limits on how much your rate can rise at one time or over the life of the loan.

  • Economic Indexes – Market-based benchmarks that influence the variable rate.

  • Margins – A small percentage added by the lender, often based on credit history.

Together, these determine when and how your payment may adjust. With the right guidance, you can plan ahead, refinance if needed, and make an ARM work to your advantage.

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Who Should Consider an ARM?

Adjustable-rate mortgages are best suited for borrowers with clear short- or mid-term plans. If you expect to move, upgrade homes, or refinance before the adjustment period begins, an ARM can offer real savings. However, if you plan to stay in the same home long term, a fixed-rate mortgage may provide more stability and peace of mind.

FAQ

What is a conventional loan?

A mortgage not backed by a government agency, offered through private lenders, and typically following Fannie Mae and Freddie Mac guidelines.

How is a conventional loan different from an FHA loan?

FHA loans are insured by the government and allow lower credit and smaller down payments, but require mortgage insurance. Conventional loans generally require stronger credit but can be more cost-effective in the long run.

Who qualifies for a conventional loan?

Borrowers usually need a 620+ credit score, stable income, and a reasonable debt-to-income ratio. Larger down payments can improve terms.

How much do I need for a down payment?

Conventional loans start at 3%–5% down, but putting 20% down avoids PMI and may lower your monthly payment.

Can I use a conventional loan for a second home or investment?

Yes — unlike some loan types, conventional mortgages can be used for vacation properties and investment homes.

Your Mortgage Partner for Smarter Decisions

With over 17 years of experience, our team helps borrowers understand the ins and outs of adjustable-rate mortgages and decide whether they’re the right fit. We’ll walk you through your options, compare scenarios, and make sure your loan is structured around both your current needs and long-term plans.

Ready to explore your options? Let’s talk about your goals and find the financing solution that works best for you.

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