Has the recent uptick in mortgage rates put your homebuying dreams on hold? If so, an adjustable-rate mortgage (ARM) may provide an option that makes homeownership a reality.

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While traditional fixed-rate mortgages allow you to lock in an interest rate that remains the same for the life of your loan, an ARM features a rate that is fixed for a certain amount of time, then may go up or down, depending on market conditions.

Because the initial rate on an ARM is typically lower than fixed-rate term loans, homebuyers enjoy lower initial monthly payments. An ARM also may allow homeowners to pay less interest in the early stages of the loan and/or pay down the principal of the loan quicker.

This comparison chart covers some of the basic differences in an ARM and a fixed-rate loan:

Advantages of an ARM vs. a fixed rate: Disadvantages of an ARM vs. a fixed rate:
  • Lower initial rate
  • Rate can go up
  • Lower initial payment
  • Payments can go up
  • Ability to pay down principal and influence future payments
  • Borrower will pay less interest during the initial fixed period, prior to the first adjustment
  • Principal balance is lower at first adjustment

 

Some common terms for an ARM are five and seven years. This means the initial rate will stay the same, in these instances, for the first five or seven years of the loan, then be subject to an increase or decrease, depending on market conditions.

So, should you consider an ARM if you are interested in buying a home? As always, it’s a good idea to consult with a trusted mortgage lender before making a final decision.

At Arvest, our lenders also are happy to discuss these and other options that may fit each homebuyer’s unique circumstances. Options could include:

  • VA loans – as low as $0 down on purchases for qualified veterans
  • Physician loans – 103% financing* on developed and undeveloped land
  • HUD 184 loans – fixed-rate options and down payments as low as 2.25%
  • Manufactured home loans – financing for manufactured and modular homes
  • Buydown of fixed-rate loans to obtain a lower interest rate by paying discount points at closing.

 

Contact your local lender or visit a branch today to explore and gain a better understanding of your options.

 

*Any financing over 100% must be used for taxes, insurance and other closing costs.