It’s no mystery that there are a lot of mortgage loan types available. What’s often less clear is which loan type is best for you. An adjustable-rate mortgage (ARM), for example, is one option to consider.

Whether you’re a homebuyer or a homeowner considering a new mortgage loan, understanding ARM mortgages is a crucial step to managing your financial future and achieving your housing dreams. We’ll explore some of the advantages and disadvantages of an ARM so you can see if it’s the best fit for you.

What is an Adjustable-Rate Mortgage (ARM)?

ARMs are home loans with variable interest rates. These dynamic loans offer homeowners an alternative to the traditional fixed-rate mortgage. ARM mortgages come with adjustable interest rates that typically start lower than fixed-rate mortgages, making them an attractive option for those seeking more affordable initial payments. With an ARM, the initial interest rate goes through a fixed period. During this time, the interest rate doesn’t change. The typical time period can range from one to 10 years. After that, the interest rate applied on the outstanding balance fluctuates periodically at annually—or even monthly—intervals.

What are the benefits of choosing an ARM?

One of the primary benefits of an ARM is typically the lower initial interest rate, which can result in more affordable monthly payments out of the gate compared to fixed-rate mortgages. This can be appealing for buyers who plan to stay in their home for a short period of time, since the initial fixed period of the ARM means they can take advantage of the lower rate before any potential adjustments. ARMs also often have rate caps which may provide protection against excessively high rate increases. For individuals who are comfortable with minor risk, ARM mortgages offer an opportunity to enjoy competitive interest rates, which can potentially lead to significant long-term savings on their homeownership journey.

What are the disadvantages of an ARM?

While ARMs offer appealing features, they come with some disadvantages that require careful consideration. One of the biggest is that the interest rate will change. The main concern is the uncertainty associated with fluctuating interest rates. As the market shifts, so too can your monthly mortgage payments, potentially leading to financial strain. Homeowners might find it challenging to budget effectively with these unpredictable changes, making long-term financial planning more complex. Moreover, for those who intend to remain in their homes for an extended period, the cost-saving benefits of the initial low rate may be outweighed by the risk of higher interest rates in the future. It’s important to thoroughly evaluate your financial situation and risk tolerance before committing to an ARM, as these mortgages can be less predictable.

Is an ARM right for you?

Everyone’s situation is different depending on individual financial goals, circumstances, and risk tolerance. ARMs can be an ideal fit for those seeking short-term affordability and lower initial monthly payments as well as those who have a well-defined exit strategy (such as selling or refinancing before the rate adjusts). Refinancing is not guaranteed, however, since it is dependent on several factors that can fluctuate, including property value, income, and credit.

The unpredictability of fluctuating interest rates may not align with a homebuyer’s long-term homeownership plans and desire for financial stability. An ARM may not be the best option if you plan to settle in for many years and want the certainty of a consistent mortgage rate and monthly payment. In that case, a fixed-rate mortgage is the more practical option.

It’s crucial to assess your ability to handle potential payment increases, understand the loan terms, and evaluate your own financial outlook. Careful consideration and consultation with a qualified loan officer at Union Savings Bank are essential steps to determine whether an ARM aligns with your current and future homeownership aspirations.


All home lending products are subject to credit and property approval. Rates, program terms and conditions are subject to change without notice. Other restrictions and limitations apply.

These articles are for educational purposes only and provide general mortgage information. Products, services, processes and lending criteria described in these articles may differ from those available through Union Savings Bank. For more information on available products and services, and to discuss your options, please contact a Union Savings Bank loan officer.

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