Pros and Cons of an Adjustable-Rate Mortgage

An adjustable-rate mortgage (ARM) offers several advantages, particularly for those who may not plan to stay in a home for more than five years.

• With lower initial interest rates, ARMs may offer lower monthly payments during the fixed-rate period, freeing up funds for home improvements or other investments.
• Lower monthly payments allow for greater borrowing power, possibly qualifying borrowers for higher loan amounts or more expensive properties.

However, ARMs come with risks.

• The possibility of an interest rate increase after the fixed-rate period may introduce uncertainty, which can make long-term budgeting challenging.
• Because a large portion of your monthly payment goes toward interest, your payments may not pay down much of the principal.