What Are the Pros and Cons of an Adjustable Rate Mortgage Loan?

Are you considering buying a home but not sure if an adjustable rate mortgage loan is the right choice for you? With so many different types of mortgages to choose from, it can be hard to know which one will work best for your needs. Let’s take a closer look at how an adjustable rate mortgage loan works and some of the pros and cons associated with it.

An adjustable rate mortgage loan (ARM) is a home loan that has an interest rate that can change throughout the life of the loan. The interest rates will generally be lower than those of fixed-rate mortgages, but they can go up or down depending on market conditions. This can offer borrowers some flexibility, but it also means there is a certain amount of risk involved.

The main benefit of taking out an ARM is that your initial monthly payments may be lower than they would be with a fixed-rate mortgage. This could be beneficial if you plan to sell your home within a few years or are only able to make a small down payment. Furthermore, if interest rates go down after you take out an ARM, you could end up paying less than you would have with a fixed-rate mortgage.

The main downside of ARMs is that your monthly payments could increase significantly over time if interest rates rise. This could leave you struggling to make your payments if you don’t have enough saved up in case rates do increase dramatically. Additionally, ARMs often come with higher closing costs than fixed-rate mortgages and may include other fees such as pre-payment penalties or origination fees. So, it’s important to read through the fine print before signing any papers and ensure that all costs are clearly stated upfront for comparison purposes. 

At RMLEFCU, our ARM loans have interest rates that start as low as 5.25% APR* during the first term. Translation? More affordable payments for you as opposed to a standard mortgage! Moreover, with RMLEFCU, most of our ARMs don’t require Private Mortgage Insurance, which saves you even more money right off the bat. Lastly, our members have a 0% origination fee when they take out an ARM with us.

After considering all these factors, it’s easy to see why adjustable rate mortgage loans can be appealing for some borrowers. However, as with other big financial decisions, it’s only natural to feel a bit hesitant before taking the plunge. With our Certified Financial Counselors by your side, you can feel confident that you have all the information possible to make the correct decision. If you’re ready to apply for an ARM loan, please give us a call at 303.458.660 or stop by one of our branches.

*Annual Percentage Rate. Restrictions may apply. Rates subject to change. Quoted rate is based on up to 80% LTV; review your needs and situation with a RMLEFCU representative.