Adjustable-Rate Mortgages see Renewed Interest as Rates fluctuate
New York – as mortgage rates remain volatile, some homebuyers are turning to adjustable-rate mortgages (ARMs) to secure lower initial payments, despite historical caution surrounding these loans. Experts suggest ARMs can be a viable option for those agreeable with potential rate adjustments down the line, offering a strategic approach in a fluctuating market.
ARMs typically offer a lower interest rate than fixed-rate mortgages for an initial period – often five, seven, or ten years – before adjusting periodically based on a benchmark index.This can provide important savings upfront, allowing borrowers to build equity and reassess their financial situation as the market evolves.
“A lot can change in one year, let alone seven or 10,” notes Matt Richardson, senior managing editor for the Managing Your Money section at cbsnews.com. “By choosing an adjustable-rate mortgage now, you’ll have the time to better gauge the market for cost savings opportunities.”
The appeal of arms is notably strong given recent rate volatility. Last September, mortgage rates briefly dipped to a two-year low before climbing again, illustrating the difficulty in timing the market. Securing an ARM now can shield borrowers from short-term fluctuations, with the option to refinance into a fixed-rate mortgage later if rates stabilize at a favorable level.
However, ARMs aren’t suitable for everyone. Borrowers must understand the terms and potential costs associated with rate adjustments. “An adjustable-rate mortgage isn’t the right fit for all or even most homebuyers,” Richardson cautions. “But if you’re one of those looking for the lowest rate available now, willing to revisit your rate in seven or 10 years, and want to protect against volatility while better analyzing the market, this unique mortgage type could make sense for you.”
Ultimately, a thorough understanding of individual financial circumstances and a clear grasp of the mortgage terms are crucial before committing to an ARM.
Matt Richardson is the senior managing editor for the Managing Your Money section for CBSNews.com, writing and editing content about personal finance.
