Images by GetTyimages. Illustrations by Hunter Newton/Bankrate
If you are in the mortgage market, one option you may encounter is an adjustable rate mortgage. These mortgages come with a fixed interest rate for the first term, and then taxes will be regularly up and down for the remainder of the loan period. Arms can be a more affordable way to get into the house, but they have some drawbacks. Here’s how to know if you need to get an adjustable mortgage:
Pros and cons of adjustable rate mortgages
To determine whether this type of mortgage is right for you, consider the advantages and disadvantages of these adjustable mortgages (ARMs).
Who is the adjustable mortgage?
So why do home buyers choose an adjustable mortgage? Here are some situations where your arm might make sense:
- You are not going to stay at home for a long time. If you know you’ll be selling your home within 5-10 years, you can choose your arm and take advantage of lower fees and payments to sell before the fees are adjusted.
- I’m planning to refinance. If you expect the rate to drop before the arm rate is reset, take your arm out now and then Refinance to a lower rate You can save a lot of money at the right time. However, please note that if you refinance during the introrate period, your lender may charge you a fee to do so.
- You are starting your career. Borrowers soon may also benefit from the initial savings of their arm, knowing they will earn quite a lot over time. Ideally, an increase in income offsets an increase in payments.
- You are satisfied with the risk. If you are supposed to buy a home now with a low payment to get started, whether you are planning on moving or not, you may simply be willing to accept the risk that your fees and payments could rise. “We’re looking forward to seeing you,” said Pete Boomer, head of mortgage loans for a regional bank in Birmingham, Alabama.
Why is your arm so popular now?
In early 2022, few borrowers accounted for just 3.1% of all mortgage applications in January, according to the Mortgage Bankers Association (MBA). Fast forward to June 2025, and that number has more than doubled 7.1%.
Here are some reasons why weapons are so popular now:
- Low interest rate: Weapons are currently at a lower adoption rate compared to the fixed-rate mortgage rate, which remains close to 7% in mid-2025. These low prices give buyers more purchasing power, especially in markets where affordability is a challenge, where home prices remain high.
- Refinance ability: Over the next few years, you can choose an arm to lower your initial fees and reduce your monthly payments to refinance if your mortgage rate drops. You can do it too Refinance to a fixed-rate mortgage If you want to maintain that low fee for the lifespan of your loan. Lenders should check if you would like to charge a refinance during the initial fee period.
- Good options for some young families: According to weapons tend to be popular among young, high-income households with larger mortgages. Federal Reserve Bank of St. Louis. High-income households may be able to absorb the risk of higher payments when interest rates rise, and younger borrowers often have the time and potential earning power to survive the ups and downs of interest trends compared to older borrowers.
Other loan types to consider
Along with your arms, you need to consider various loan types. Some people may have more generous down payment requirements, lower interest rates, or lower monthly payments than others. The options are:
- 15-year fixed-rate mortgage: If that’s the interest rate you’re worried about, consider a 15-year fixed-rate loan. Usually it has a lower rate than its 30-year counterpart. You make bigger monthly payments, but reduce your interest payments and pay off your loan faster.
- 30 Year Fixed Rate Home Loan: If you want to keep these monthly payments low, a 30-year fixed mortgage is the way to go. You can pay more interest over the long term, but your payments are more manageable.
- Government-supported loans: If that’s a simple term, you’d long for, FHAUSDA or VA loans often have lower declines and loose qualities.
