Is an adjustable rate mortgage right for me?

When shopping for a new home or looking to refinance your existing home loan, it’s important to do your homework. You’ll need to decide what type of loan is right for you. One of the most common types is an adjustable rate mortgage (ARM). With an ARM loan the interest rate may adjust up or down according to the interest rates in the economy. Here are some tips to think about when deciding if an ARM is right for you.

Get the lowest rates
Interest rates are currently among the lowest in history. ARM loans are one way to bring them even lower. Typically, this loan has an initial lower rate than a fixed rate mortgage. An ARM has a fixed period of time where the rate won’t change. After that it can adjust up or down based on the national rates.

You’ll want to ask your lender how often the rate is subject to adjust. You’ll want to make sure you can still make your payments should the rate increase.

You don’t plan on staying in a mortgage very long
An ARM is a good option if you don’t plan on being in a home very long or you choose a shorter mortgage term. The lower initial rate could possibly outweigh any potential future adjustment in these situations.

You can pay less
With this type of loan you can also take advantage of the lower initial interest rate at the beginning of the loan. With lower initial payments, you may be able to save more and invest it, thereby getting higher returns in the future.

Remember, while an ARM may save you money over the fixed-rate period, they may not be for everyone. It’s important to know the benefits and the risk. Talk with your loan officer to determine if an ARM is right for you.

Article provided by Local Government Federal Credit Union.