If your goal is to lower your monthly payment and you intend on keeping your home for less than 10 years you may want to consider an adjustable rate mortgage. With an adjustable rate mortgage you can lower your monthly payments by obtaining a lower initial interest rate then those associated with traditional fixed rate mortgages.

Most adjustable rate mortgages don’t start adjusting from day one. Typically ARM’s will be fixed for an initial period before they adjust. Initial fixed periods for ARM’s range from 1 – 10yrs, You can determine the amount of time an ARM product is fixed by the way it is labeled, for example a 3/1 ARM is fixed for 3 years and a 5/1 ARM is fixed for 5yrs and so on and so forth. The number that follows the number of years the loan is fixed designates the frequency the loan will adjust after the fixed period has expired. For example a 3/1 ARM is fixed for three years and will adjust once each year thereafter and a 3/6 ARM is fixed for three years and will adjust once every six months thereafter.

Advantages

• Lower initial monthly payment
• Lower payment over a shorter period of time
• Rates and payments may go down if rates improve
• May qualify for higher loan amounts

Disadvantages

• More risk
• Payments may change over time
• Potential for high payments if rates go up