5 Homebuyers an Adjustable Rate Mortgage (ARM) Is Perfect for

Posted April 10 2015
by PenFed Team
Young couple getting keys to new home

Is An Adjustable Rate Mortgage Right For You?

The low initial interest rates and monthly payments of an Adjustable Rate Mortgage (ARM) dazzle many a homebuyer looking to slip into a new home with the best mortgage deal possible.

An ARM can help protect you from runaway interest increases. For example, a common type of ARM may offer interest changes by no more than 2 percentage points up or down at each rate adjustment, never to exceed 5 percentage points above your initial rate.

While the possibility of larger payments down the road sounds scary to some homebuyers, an ARM provides the perfect mortgage solution and flexibility for others.

Who Should Consider an ARM?

An ARM could be the perfect mortgage for you if:

  1. You plan to move again in less than five to 10 years. An ARM can be an unbeatable deal if you’re planning to move again sooner rather than later. If you move or refinance before your first or second interest adjustment, you’ll take advantage of the best interest rates and lowest monthly payments.
  2. You’re working with a tight budget. If you need a little extra help affording house payments, an ARM’s smaller monthly payments can get you into a new home now.
  3. You anticipate a significant raise or added source of income in the next five to 10 years. If you’ll have earned a new degree or made a significant step up the career ladder before your first or second ARM adjustment, the prospect of higher interest and payments could prove to be no issue at all. You’ll have five to 10 years to snag that raise or take the next step in your career— if it’s already in the works, the possibility of a rate increase may be something you can live with.
  4. You’re determined to pay the lowest interest rate possible. If saving money is your top priority, there’s almost no beating the starting rates of an ARM. If you qualify, you can always refinance before the first or second adjustment to ensure your rates stay right where you want them.
  5. You’re trying to qualify for a more expensive house. If the house or neighborhood of your dreams is a stretch for your budget, an ARM could help you lower your monthly payments enough to qualify for a more expensive home than you could with a conventional loan. However, this decision should be taken into consideration very carefully to ensure you can still afford the loan when the time comes for the rate to adjust.

The Flexible Mortgage You Need

Shopping for a mortgage? PenFed’s mortgage lending programs are designed to help you purchase or refinance a home. See our current rates for our 15/15 ARM—and compare our 10/1 ARM and 5/5 ARM or take a look at more mortgages at our mortgage center.