Rethinking ARMs in Today’s Rate Environment

Rising are just one of many contributing factors that have made homebuyers a bit pessimistic regarding the current housing market. Considering that 87% of all homebuyers are known to have used some sort of financing for their next home purchase, rising rates seem like a reasonable concern.1

But the fact remains that there are still solutions available that can make buying a home much more affordable. For years borrowers have gravitated toward fixed-rate because of their predictability after the fiscal crisis back in 2008.

However, with waning affordability, it may be time to rethink adjustable-rate mortgages (ARMs) and the value they can provide in terms of both their initial fixed-rate period and purchasing power when facing new rate hikes.

What’s the Upside to an Adjustable-Rate Mortgage?

Buying a home is a big decision and one that doesn’t come cheap. Regardless of if you are wading through a strong seller’s market or not, it’s important to get the most home for your budget.

The problem is that as increase, so do the costs to buy that perfect dream home. There are several ways an adjustable-rate mortgage can help buying a home much easier.

1.  Affordability and Purchasing Power

Rising rates directly impact housing affordability, namely because the higher your rate, the greater your payment, meaning additional stress that your budget may not be able to manage.

Choosing a solution with the lowest interest rate can help improve your ability to afford a more expensive home.

If you compare rates of adjustable-rate mortgages to fixed-rate mortgages, you may notice that the rates are often a bit lower when choosing the variable option. That’s because adjustable-rate mortgages have what is called an introductory or initial fixed-rate period.2

Adjustable-rate mortgages are set up in a way that lenders typically offer a lower introductory rate for a predetermined amount of time, after which your rate may be subject to adjustment (up or down) at specific intervals, depending on market conditions.

Leveraging an adjustable-rate for its lower introductory period could help power your budget to allow you to qualify for a higher loan amount, meaning you can purchase a more expensive home.

2.  Short-Term Financing Strategy

Adjustable-rate mortgages can also be a great short-term strategy for property owners and investors who plan to sell their property within a short period of time.

Rather than lock in a more expensive payment, the lower rate that often comes with an adjustable-rate mortgage’s initial fixed-rate period can help lower your monthly payment and save you money in interest.

This can be a great option for those looking to retire or borrowers looking to relocate within a five-to-seven-year time horizon. However, keep in mind that market conditions could change during that time.

If markets take a turn, it could be difficult to sell your home and you could be stuck paying more if your interest rate adjusts upward.

3.  Hedge Against Rate Changes

While the market is forecasted to see additional rate increases throughout 2022, beyond that is anyone’s guess. One factor to consider is when rates hit a stopping high point in the future.

One of the benefits of using an adjustable-rate is that as rates begin to drop, you can take advantage of lower rates as market conditions change. This means your payment has the potential to go down as well.

With a traditional fixed-rate mortgage, your rate is locked in for the life of your loan meaning you cannot leverage any future advantages the market might provide without refinancing and going through the application process all over again.



1 National Association of Realtors Research Group. (2021, March). 2021 Home Buyers and Sellers Generational Trends Report. NAR.


2 Consumer Financial Protection Bureau. (2020, September 4). What is the difference between a fixed-rate and adjustable-rate mortgage (ARM) loan? Retrieved April 20, 2022, from


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