My mortgage payments are by far my largest monthly expense, so when I recently got the chance to cut them, I cut them as deeply as I could — even though it meant doing something I never thought I’d do: Forgoing the security of a fixed-rate mortgage for an adjustable one.
An ARM, also known as a “variable-rate mortgage,” offers a low introductory interest rate—typically for three, five, seven or 10 years—and when that period ends the rate turns into a floating rate for the remainder of the loan. Once rates adjust, mortgage payments for an ARM can double or even triple. With today’s mortgage rates at or near record lows, future rates may have only one way to go: up.
I knew ARMs had earned a pretty bad rap—they were involved in many of the mortgage defaults that rocked the housing market during the Great Recession. And every mortgage lender I spoke to told me to steer clear of ARMs, since I didn’t know how long I would own my new home. (At the time I was single, with no plans to move in the foreseeable future.)