The Overlooked Benefit of an Adjustable-Rate Mortgage

An adjustable-rate mortgage isn't automatically the riskier choice. In the right situation, it actually can offer meaningful savings.

Let's say the starting ARM rate is three-quarters of a percent below the 30-year fixed rate. On a $400,000 loan, that could lower the initial payment by roughly $200 a month. Over the first five years, that's about $12,000 in payment savings. Nice!

But here's the part borrowers sometimes overlook: an ARM rate can adjust down as well as up.

After the fixed period, the new rate is calculated using a published market index plus a set margin. If that index falls, the mortgage rate, and thus the payment will fall at the next adjustment, subject to the loan's caps and minimum rate.

That means a borrower who expects rates to decline could benefit without refinancing. And because the ARM rate started below the fixed rate, the total savings could be greater than what the borrower would have realized by refinancing a fixed-rate mortgage.

The right choice depends on the starting-rate difference, the adjustment rules, and how much uncertainty fits your plans and budget.

And remember - it's always okay to ask. We're here to help you get home.