A balanced look at when ARMs make sense—and when they might not.

When shopping for a home loan, most buyers are familiar with the standard 30-year fixed-rate mortgage. But there’s another option that might fit your financial goals better—Adjustable-Rate Mortgages, or ARMs. As the name suggests, the interest rate on an ARM changes over time, which can be both a benefit and a risk depending on your situation.

This month, we're taking a closer look at the pros and cons of ARMs to help you decide if this loan type could be a smart move for you.

What Is an ARM?

An Adjustable-Rate Mortgage typically starts with a lower fixed interest rate for an initial period (usually 5, 7, or 10 years). After that, the rate adjusts periodically—usually once a year—based on a financial index plus a margin set by the lender.

For example, a 5/1 ARM means your rate is fixed for the first five years, then adjusts annually after that.

The Pros of ARMs

Lower Initial Interest Rates

ARMs usually offer lower starting rates than fixed-rate mortgages. This can translate to significant savings in the early years of your loan—ideal if you're planning to move or refinance before the adjustment period begins.

More Buying Power

With a lower starting rate, your monthly payment may be lower, which means you might qualify for a higher loan amount or free up more of your budget for renovations or other expenses.

Good for Short-Term Homeowners

If you expect to move within 5 to 10 years, an ARM can be a strategic choice. You can benefit from the lower rate and avoid the risk of future increases.

The Cons of ARMs

Rate Uncertainty After the Fixed Period

The biggest downside is that your rate and monthly payment can increase after the initial term. If interest rates rise, you could end up paying much more over time.

Complex Terms and Caps

ARMs come with terms like rate caps, margins, and indexes that can be confusing. Understanding how much your rate can adjust (and how quickly) is crucial before you commit.

Risk in Long-Term Plans

If you plan to stay in your home long-term and rates go up significantly, an ARM could end up costing more than a fixed-rate mortgage would have.

Is an ARM Right for You?

An ARM can be a smart financial tool—especially in a high-rate environment or for buyers with shorter time horizons. However, it’s not a one-size-fits-all solution. The key is to evaluate your financial stability, future plans, and comfort with risk.

How Consumers National Bank Can Help

At Consumers National Bank, our mortgage specialists are here to walk you through every option—from fixed-rate loans to ARMs—and help you determine what makes the most sense for your unique goals. We'll explain the details in clear terms so you feel confident every step of the way.

Thinking about an ARM or exploring your mortgage options? Let’s chat! Visit your local Consumers National Bank branch or contact our mortgage team today.