Adjustable rate mortgages (ARMs) have gotten a bad reputation, but in certain situations they may actually be more beneficial than a fixed rate mortgage. If you are considering an adjustable rate mortgage, weigh the pros and con and determine if your future plans and  financial situation make an ARM a good option for you.

Consider the Length of Stay and Rate Expectations

When deciding what kind of mortgage is right for you, consider how long you plan to live in your home. Do you intend on spending the rest of your life there or is it a starter home you will grow out of in two or three years? If you don’t expect to stay in the home long-term you may want an adjustable rate mortgage as interest rates tend to be lower than a fixed rate mortgage.

In addition to the timeframe you intend on staying in your house, also consider how mortgage interest rates are expected to trend during the time you will be living in your house. If rates are expected to decline, your mortgage payment will decrease, and conversely your payment will go up with interest rates. No one knows  what interest rates will do for certain, but it’s wise to do a little research and find out what experts think.

Can You Sleep at Night?

Choosing between a fixed-rate and a variable-rate mortgage is a financial decision, but there is also an emotional aspect to consider. If the idea of a fluctuating mortgage  payment keeps you up at night, the stability of a fixed-rate mortgage may be a better fit for you. If a changing payment isn’t stressful and you have the financial means to keep up with the fluctuations, then be sure to compare and contrast the variable rate options with the fixed rate mortgage options available to you.

Financially Speaking

You will also want to carefully think about your financial situation.  Having a job where you receive big bonuses at various times throughout the year will allow you to use this extra money to chip away at the principal balance on the mortgage. You may also put this money away in case there is a fluctuation in the interest rate .  In a situation where the interest rates are decreasing and your goal is to pay off your mortgage early, bonus time can be an opportunity to knock off a big chunk of the balance and decrease the monthly mortgage payment simultaneously.

If you’re thinking about a variable rate or adjustable rate mortgage make sure that you are up for the challenge. Depending on the interest rate environment, your personal financial situation and your ability to handle a little unpredictability, you may find that these types of mortgages can benefit you in the long run.