Adjustable-Rate Mortgages: Are They Still Viable Today?

With the current economic environment, 30-year interest rates have risen from the 2.96 percent rate of 2021 to the current 6.68 percent rate.

Gumbariya/Shutterstock

Buyers often gravitate to adjustable-rate mortgages (ARMs) when interest rates are high. They assume a drop is coming, and they don’t want to be locked into a high fixed rate.

But what are ARMs, and how do they work? With the current economic environment, 30-year interest rates have risen from the 2.96 percent rate of 2021 to the current rate of 6.68 percent. Can an ARM help? Who should apply for one, and what are the pros and cons?

How an ARM Works

An ARM is a type of home loan that features a variable interest rate. The initial interest rate is fixed for a period. Once the period elapses, the interest rate on the outstanding balance resets. It could increase or decrease depending on the performance of a specific benchmark.