Why is an adjustable rate mortgage (ARM) beneficial?

An adjustable-rate mortgage (ARM) is a loan in which the interest rate is periodically adjusted, primarily to keep the loan payment lower than a fixed-rate mortgage. ARMs offer borrowers an attractive payment option as the rate can be adjusted lower in the early years of the loan. In Virginia, ARMs can provide financial relief to those borrowers with limited incomes or who have little or no down payment. A big benefit of an ARM is that the interest rate is typically lower than the rate of a fixed-rate mortgage. This can make a big difference in the amount of the monthly payment, especially in the early years. Borrowers who plan to move in a few years or are in a situation where they are likely to refinance the loan soon can benefit from the lower payments of the ARM. ARMs can be beneficial to those who are unsure of how long they will live in the same home or whether their income will change significantly over time. With an ARM, payments are lower at the beginning, allowing people to have more money available for other uses, such as investing or remodeling projects. Also, ARMs are not as risky as fixed-rate mortgages if interest rates go down. If rates go down, the ARM payments stay the same, since the adjustable rate feature of the loan will be adjusted to the lower rate. Compared to a fixed-rate loan, where the payments do not adjust to the lower rate, an ARM may prove to be a more cost-effective mortgage option for borrowers in Virginia.

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Why is an adjustable rate mortgage (ARM) beneficial?

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