Adjustable Rate Mortgages (ARMs) are often overlooked—but they can be a smart option for many buyers and homeowners. Whether you're purchasing your first home or refinancing, understanding the flexibility and savings that ARMs offer could help you make the most of your mortgage. In this article, we’ll break down how ARMs work and how they may benefit your financial goals.
What Is an Adjustable Rate Mortgage?
An ARM is a mortgage loan with a variable interest rate. At first, the rate is fixed for a period of time (such as 5, 7, or 10 years), then adjusts periodically based on market conditions. For example, a 5/5 ARM has a fixed rate for the first five years and then adjusts once every five years after that.
This can lead to lower initial monthly payments, which makes an ARM an attractive option for certain buyers and those planning to refinance.
Why Consider an ARM?
There are several reasons why an Adjustable Rate Mortgage may be the right choice:
1. Lower Initial Interest Rate: ARMs often begin with a lower interest rate than fixed-rate mortgages.
2. Short-Term Ownership: If you plan to move or refinance within a few years, you can take advantage of the lower rate without seeing any increases.
3. Improved Loan Qualification: Lower monthly payments may help you qualify for a larger loan.
Things to Consider with an ARM
It’s important to understand the key components of an Adjustable Rate Mortgage before deciding:
• Adjustment Periods: Know when your rate will begin adjusting and how often it can change.
• Rate Caps: There are limits on how much your interest rate can increase per year and over the life of the loan.
• Index + Margin: After the fixed period, your new rate is calculated using a market index plus a set margin.
You can use Dover Federal’s financial calculators to estimate your potential monthly payments over time.
Who Might Benefit from an ARM?
ARMs are especially beneficial for:
• First-time homebuyers looking for lower payments
• Military families or others expecting to move within 5–10 years
• Homeowners looking to refinance for short-term savings
• Buyers in fast-growing housing markets
Want to learn more? Explore mortgage options at Dover Federal Credit Union.
About Dover Federal Credit Union
For 67 years, Dover Federal Credit Union has served as a member-owned financial cooperative, designed to provide access to equitable financial products and services that create stability and lead to establishing generational wealth. Today, we serve over 44,000 members, encompassing the military, Delaware families, and Workplace Partners. Serving Camden, Dover, Middletown, Milford, Smyrna & the New Castle areas in branch & online.
