Adjustable Rate Mortgage (ARM): Today's Rates, Pros and Cons (2024)

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When mortgage rates are high, borrowers often turn to adjustable-rate mortgages to save money. Check out today's ARM rates to see how rates are currently trending.

What are current ARM rates?

In May, 7/1 ARM rates and 5/1 ARM rates averaged around 6.99% and 6.88%, respectively, according to Zillow data. These rates similar to where they were the previous month. So far in June, ARM rates have been trending a bit lower.

ARM rates were a bit higher than 30-year fixed mortgage rates last month, which averaged 6.76%. This means that an ARM might not get you a discount right now compared with a fixed-rate loan. But it depends on the length of the ARM and what index its rate is tied to.

Another common ARM length is the 10-year ARM, often available as either a 10/1 or 10/6 ARM. Of the most popular types of ARMs, 10-year ARMs have a long fixed-rate period, which means that they typically have slightly higher rates than shorter terms.

Mortgage rates have remained elevated as high inflation rates dissuade the Federal Reserve from cutting the federal funds rate, which influences all sorts of consumer borrowing costs. Once inflationslows and the labor market cools off, mortgage rates should start dropping.

Compare today's ARM interest rates

See how the latest ARM rates compare to other types of mortgages.

Fixed-rate mortgage vs. ARM rates

Typically, ARM rates are lower than average 30-year fixed mortgage rates, depending on the type of ARM.

But right now, ARM rates aren't significantly lower than 30-year fixed rates. In some cases, they may even be higher.If mortgage rates fall across the board in the coming months and years, ARMs may start to come with a better discount. But at the moment, you're often better off getting a fixed-rate loan.

How ARMs work

The term "ARM" refers to an adjustable-rate mortgage. When you get a mortgage, you'll need to decide whether you want a fixed or adjustable rate.

Fixed-rate mortgages have the same rate for the entire life of the loan. This means your monthly payment will remained largely unchanged, except for adjustments in your tax and insurance costs.

Initial fixed period and subsequent adjustments

Adjustable-rate mortgages start out with a fixed rate for a certain period of time. Once this fixed period is up, your rate will adjust on a regular basis according to whatever index the rate is tied to.

For example, with a 7/1 ARM, you'll pay the same interest rate for the first seven years, then your interest rate will adjust every year after that. With a 5/6 ARM, your rate will be fixed for the first five years, then adjust every six months.

Caps

Typically, ARMs come with rate caps, which limit how much your rate can change each time it adjusts and how much it can go up over the life of the loan. Your mortgage lender will be able to tell you how much your monthly payment could increase each time the rate adjusts, and the maximum amount you could ultimately end up paying.

Benefits of an adjustable-rate mortgage

You may get a lower initial interest rate

If you can get a significantly lower rate on an ARM compared to a fixed-rate mortgage, your monthly payment will be lower, giving you some extra room in your budget for other things, like saving for retirement.

Potential savings if rates drop later on

If your rate drops once the initial fixed period is up, your monthly payment will go down even further. With a fixed-rate mortgage, you'd need to refinance to take advantage of lower rates.

Risks of an adjustable-rate mortgage

Unpredictable payments

While ARMs can help you save money, they come with the risk that you'll end up with less money to spend each month if your mortgage payment ultimately increases when the rate adjusts.

You might not be able to get out of the loan before the rate adjusts

Many borrowers get ARMs intending to either sell or refinance before the fixed-rate period is over. But there's no guarantee that you'll be able to do either.

Mason Whitehead, a Dallas-based branch manager for Churchill Mortgage, learned firsthand what the consequences of this can look like after he was unable to get out of his 5-year ARM.

"I did it because I knew I'd be selling it in three to four years and it would be fine," Whitehead says. "But the market is hard to predict, and largely because of the housing bubble burst in 2008, I was still holding that property 10 years later and couldn't sell it. All this being said, it's critical you be prepared for the worst-case scenario and have the financial wherewithal to handle escalating payments, because it can become a reality when you least expect it."

Complex terms

There are many different types of ARMs available, and the way they all work isn't as straightforward as with fixed-rate mortgages. If you're getting an ARM, it's vital that you completely understand how it works, including what index it's based on, how often it can adjust, and how much your monthly payment could increase over time.

Is an ARM a good idea in 2024?

ARMs are generally only a good idea if rates are likely to drop by the time your rate would adjust, or if you're confident you'll be able to sell or refinance before it does.

Most major forecasts expect mortgage rates to trend down over the next couple of years. But mortgage rates are often unpredictable. They can be influenced by a variety of factors, including the economy, the Federal Reserve, and even natural disasters, geopolitical tensions, or, as we saw in 2020, pandemics.

If you're considering an ARM, you should prepare for the worst-case scenario and make sure you can comfortably afford the mortgage even if your monthly payments increase.

"Borrowers should consider their financial situation and ability to absorb potential rate increases before getting an ARM," says Mike Rhoads, owner of real estate investment company Rhoads Home Buyers. "They should also be aware of the terms and features of the ARM, including the index it is tied to, the margin, and any caps on interest rate adjustments."

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ARM frequently asked questions