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Is an Adjustable-Rate Mortgage Loan Right for You?

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Meghan Boyles

As the demand for mortgage loans continues to climb, rising rates, combined with a jump in prices and low inventory, are presenting a challenge for homebuyers. However, don’t let higher rates scare you away from starting your journey to homeownership. One option for qualified buyers is an Adjustable-Rate Mortgage (ARM). What exactly is an ARM? In short, it is a convenient way to lock in a lower rate that will adjust over a designated period of time. ARMs typically feature lower initial rates than traditional fixed-rate mortgages, providing lower monthly payments as you begin homeownership.

The trade-off with an ARM rather than a fixed-rate option is a higher long-term risk, as you assume the risk that if interest rates rise over the life of the mortgage, this leads to a higher rate and higher monthly payment than a traditional fixed-rate mortgage.

If this is your situation, an ARM could be a good option for you:

You plan to sell your home in a short period of time. If you are planning to sell within the first 10 years of owning your home, you can potentially receive a lower initial rate and reduce your long-term risk.

You have confidence in your future income. If you anticipate an increase in your future income that could cover a potential rise in rate and monthly payment, an ARM may provide you with the lower short-term rate and payment that you need.

You intend to pay off debt. If you have a realistic idea of how much you would be able to save during the initial rate period and you intend to use those savings to pay off other debt or make specific investments in your new property, then an ARM may be a smart choice.

Keep in mind that as the real estate market remains competitive, there are many solutions that may fit your individual financial needs. It is important to weigh all your options and plan for what the future may hold. ARMs can be complex loan options, so it is always recommended to discuss your situation with a mortgage banker to ensure you are making the right move as you venture into homeownership. 

By: Meghan Boyles

Meghan is a mortgage marketing representative for Ameris Bank. Born and raised a Tar Heel, Meghan graduated from the University of North Carolina at Chapel Hill where she studied Marketing and Public Relations. Meghan currently resides in Atlanta, Ga. In her free time, Meghan enjoys exploring Atlanta with her pup Brody and watching Carolina basketball.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Ameris Bank is not affiliated with nor endorses Nerd Wallet.