An Adjustable Rate Mortgage (ARM) can be risky because – as the name implies – the rate is adjustable based on a financial index. Thus, the rate can go up, down or remain the same. However, there are situations where an ARM makes sense.
- Buying for the short term – Buyers planning to live in the home for 3-7 years.
- Strong future prospects – Buyers who know their financial future is about to improve.
- High net worth individuals – Buyers who know they can earn more interest with their than what they are paying in interest on a mortgage.
Experts warn that the worst scenario is for a buyer who can’t qualify for a 30-year fixed to use an ARM to qualify with a lower rate.