Why would someone choose an ARM over a fixed rate loan?

Pros of an ARM Since both loans are amortized over the same number of years, the ARM will have a lower monthly payment because of its lower rate. Lower interest expense: Over an ARM’s initial fixed period, you’ll spend less money on interest. This means more savings for you — at least, in the short term.

Why ARM is better than 30 year fixed?

1. The long-term interest rate is on a downward trend. Therefore, choosing an ARM is smarter because you’d be paying a lower interest rate (during the fixed-rate period) than a 30-year fixed-rate mortgage. And when the ARM eventually floats, you can expect interest rates to still remain low.

Are ARM rates good?

1. Lower rates help you build equity faster. The obvious advantage of an adjustable-rate mortgage is that they carry lower interest rates during the fixed period of the loan. The smart thing to do might be to take out a 5/1 ARM but make monthly payments as if it were a 30-year fixed mortgage.

Why would you want an ARM?

Pros of an adjustable-rate mortgage It allows borrowers to take advantage of falling rates without refinancing. Instead of having to pay a whole new set of closing costs and fees, ARM borrowers just sit back and watch the rates — and their monthly payments — fall. It can help borrowers save and invest more money.

Do ARM loans always go up?

An adjustable-rate mortgage (ARM) is a loan with an interest rate that changes. ARMs may start with lower monthly payments than fixed-rate mortgages, but keep in mind the following: Your monthly payments could change. They could go up — sometimes by a lot—even if interest rates don’t go up.

What is a 10 1 ARM interest only?

Lenders say the 7/1 and 10/1 choices are most popular with borrowers. Generally, the interest-only period is equal to the fixed-rate period for adjustable-rate loans. That means if you have a 10/1 ARM, for instance, you would pay interest only for the first 10 years.

What is one disadvantage of a fixed mortgage?

Loss of flexibility – one major disadvantage of a fixed rate mortgage loan is the loss of flexibility. You’ll lose out if interest rates fall – if interest rates fall while you’re in a fixed rate mortgage, your rate will remain the same.

How long does an ARM loan last?

Terms on ARMs are usually 30 years, but they don’t have to be. When you’re comparing loan options, there are some special members to pay attention to when looking specifically at ARMs.