Mortgage Options: ARMs vs Fixed Rate

[Tyler Hodgson]

ARMs (Adjustable Rate Mortgages) are a product that haven't been mentioned much in the last few years. As rates were at all-time-low levels, the spread/benefit of an ARM was nearly non-existent. However, as rates are rising, ARMs are becoming relevant again. If you are getting a mortgage soon, be sure you are working with a mortgage professional who compares multiple options for you and explains the pros and cons, based on your strategy.

ARMs often had a bad name in the past, but when used in certain scenarios the benefits are clear. I've included an image below of a comparison of a 30-yr Fixed and a 10/6 ARM. You'll see the difference in rate is 0.375%, which is substantial. If you plan on only owning a home (or refinancing it) for less than 10 years, then a 10/6 ARM (or another ARM product) could be your best option right now. Of course many investors envision owning all of their rental properties forever, but that's often not the case, or a refinance comes into play at some point.

If you have a questions about ARMs, post them here, and I'd be happy to answer them.