This Is the Only Reason I'd Get an Adjustable-Rate Mortgage

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KEY POINTS

  • With an adjustable-rate mortgage, your interest rate can change over time.
  • That's a risk I generally wouldn't want to take, though I'd make an exception if my housing situation was temporary.


An adjustable-rate mortgage carries risk, so there's only one scenario where I'd want one.

When my husband bought the house we wound up sharing together when we first got married (he purchased it solo before we met and I moved in a few years later), he was convinced it would serve as his starter home. Though the house was nice and fairly comfortable, it was pretty small and not very updated. 

Because my husband didn't expect to be in his home for many years, he decided to get an adjustable-rate mortgage, or ARM, rather than a fixed-rate mortgage. At the time, the interest rate he was eligible for on an ARM was lower than the rate he would've snagged on a fixed loan, so he decided to go for the savings.

In the end, that move worked out. Though we didn't end up selling that house before that adjustable rate started changing, that old mortgage wound up adjusting in our favor. In fact, during our last year in that house, the rate on that ARM dropped significantly, leaving us with a lower mortgage payment to come up with.

In spite of that situation working out, I'm pretty opposed to signing an ARM. In fact, there's only one situation where I'd do it.

When your housing situation is temporary

My husband and I have toyed with the idea of moving many times. Our current home, which is only around the corner from the starter home he bought years ago, is in a neighborhood with super-high property taxes that we're tired of paying. 

The one reason we've stayed put thus far is because of our kids. They like the neighborhood, the schools are good, and moving would mean pulling them out of their comfort zone. 

Once we become empty-nesters, though, my husband and I would like to downsize. We also hope to explore different parts of the country -- for example, live in one state for a couple of years and then try a new state for two or three years after that. 

If that dream comes to be, we'd probably look to buy a series of smaller homes that we'd aim to sell in short order. And in that situation, an adjustable-rate mortgage could make sense. 

Basically, in my mind, adjustable-rate mortgages are very risky. And they're not a great option when you're buying a home you expect to live in for many years. 

But if you're buying a home you expect to hang onto for five years or less, then getting an ARM could result in a nice amount of savings. That way, you're selling your home before the rate on your mortgage begins to climb. 

Be careful with an adjustable-rate mortgage

Generally speaking, I'm not a fan of adjustable-rate mortgages, but I think they can make sense in situations where the home you're buying isn't one you plan to keep for a long time. But be mindful of the fact that your plans to stay put for a short amount of time can change, too. 

That's what happened to my husband. He wound up staying in his starter home for longer than expected, and thankfully, the rate on his mortgage shifted downward, not upward. But the opposite could've easily happened. That's a risk anyone who gets an ARM automatically takes.

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