Making the decision to purchase a home is a big one, but the choice of which type of mortgage to get can be even more daunting. An adjustable rate mortgage (ARM) may seem daunting, but it has many advantages that can be beneficial for those looking for a more affordable mortgage.

An adjustable rate mortgage features an interest rate that can change periodically during the life of the loan. Usually, ARMs have a lower initial interest rate than a fixed-rate mortgage. This can bring a big benefit to the borrower, as the lower initial rate can save them a significant amount of money over the life of the loan.

Another advantage of an ARM is that it can be used to make large purchases. Because of the lower initial interest rate, borrowers can finance more expensive items than they would be able to with a fixed-rate mortgage. This means that people who are looking for a way to finance a new car, for example, may find that an ARM is the best option for them.

Another benefit of an ARM is that, if used properly, it can help to reduce monthly payments in some circumstances. Because the interest rate can change periodically, borrowers can take advantage of low interest rates to reduce their payments. When the initial period of the loan comes to an end and the interest rate begins to adjust, borrowers can use the new lower rate to reduce their payments.

Finally, ARMs can also be beneficial in a falling market. When the market is rising, fixed-rate mortgages offer more stability and protection for borrowers. But in a falling market, ARMs can be a better option. Since the borrower has agreed to a cap on the interest rate, they are protected against the possibility of rising rates, whereas with a fixed-rate mortgage they may be stuck paying a higher rate than they would like.

Of course, there are some potential disadvantages to an ARM as well. As already mentioned, the interest rate can change periodically and if the rate increases, monthly payments can become significantly higher. Additionally, if borrowers do not plan carefully and the loan adjusts too frequently, the mortgage can become unaffordable.

In conclusion, the adjustable rate mortgage can be a great option for many borrowers. While there are some potential drawbacks, when used properly an ARM can help bring lower monthly payments and the ability to make more expensive purchases.