How to Decide if an ARM is Right for You

An adjustable rate mortgage, called an ARM for short, is a mortgage with an interest rate that is linked to an economic index. The interest rate, and your payments, are periodically adjusted up or down as the index changes.

You may see an ARM described with figures such as 1-1, 3-1, and 5-1. The first figure in each set refers to the initial time period of the loan, during which your interest rate will stay the same as it was on the day you signed your loan papers. The second number is the adjustment period, showing how often adjustments can be made to the rate after the initial period has ended. The examples above are all ARMs with annual adjustments--meaning adjustments could happen every year.

You may be wondering, why choose an ARM if my payments can go up? The initial interest rate for an ARM is lower than that of a fixed rate mortgage, where the interest rate remains the same during the life of the loan. A lower rate means lower payments, which might help you qualify for a larger loan. You should also consider how long you plan on owning the home. If you plan on selling your home within the ARM time period, the possibility of your payments going up isn't as much of a factor.

There are many types of mortgages out there, and all of the information can be confusing. Heritage loan officers are ready to answer any questions that you may have about ARMs or our other mortgage programs. Call or stop by your local branch today with your questions, and we can help you get into the home of your dreams!