Is a variable interest rate mortgage right for you?

A home loan with a variable interest rate is known as an adjustable-rate mortgage or ARM. If you choose an ARM, your monthly payments can periodically go up or down when interest rates fluctuate.

On the other hand, if you choose a fixed-rate mortgage, your interest rate will remain the same for the entire life of the loan, resulting in a loan payment amount that will not change.

An ARM starts with a fixed interest rate that lasts for a set period, usually three, five, seven or 10 years. After this period, the interest rate adjusts based on the agreed-upon index, which can cause it to go up or down.

Typically, your variable interest rate fluctuates based on an agreed-upon index that your loan is tied to and the terms of your loan. There are limits on how much your interest rate can increase from one period to the next. ARMs also have a lifetime cap which limits the interest-rate increase over the life of your home loan.

Navigating the home loan landscape can be complex, especially when considering a variable interest rate versus a fixed-rate mortgage. Here’s two examples of when a variable interest rate loan would be an advantage:

• Future rate reductions

  In situations where current interest rates are expected to decrease in the future, opting for a variable interest rate loan can potentially be an advantage. As market rates decline, so does your interest, potentially resulting in long-term savings. This flexibility allows you the opportunity to benefit from market fluctuation. You can use our mortgage payment calculator to test out different rate scenarios, and we’ll show you how much your total monthly payment will run each month.

• Short-term homeownership

  If you’re not planning a long stay in your new home and are purchasing in a low interest rate environment, a variable interest rate loan can be an excellent option. With a variable rate, you can secure a lower ARM versus a fixed-rate mortgage. which translates to lower monthly payments during your homeownership.

• Important consideration: Market volatility

  It’s essential to remember that variable interest rates don’t always decrease over time. Market conditions can be unpredictable, leading to unexpected rate increases. If you’re comfortable with the possibility of higher mortgage payments in the future, an ARM may be a good fit for you. Before deciding, discuss the maximum amount your payments could increase with your local loan officer.

After you’ve provided the necessary information to your loan officer, they will guide you on the best loan option for your needs and financial situation. There are several options available, each with unique eligibility requirements:

• Conventional loans

  Homebuyers seeking a Conventional loan typically enjoy the largest selection of loan options at the most competitive rates, with both fixed- and variable-rate options available.

• Government-backed loans

  When applying for a variable interest rate loan program, you may choose a government-backed loan, such as an FHA, VA or USDA loan. FHA loans are great for first-time homebuyers. With only a 3.5 percent down payment and credit scores as low as 540*, borrowers can become homeowners with a less-than-perfect credit score.

  VA home loans open the door to homeownership by eliminating the need to spend years saving for a down payment or building a good credit history.

• Jumbo loans

  If you’re looking to move into a more expensive home than the average national home price, a Jumbo can give you more buying power than a Conventional conforming ARM. Jumbo ARM options potentially provide a lower fixed interest rate for the introductory period depending on the current market, which could help make your monthly payment more affordable.

Choosing a mortgage is one of your most important financial decisions. Don’t hesitate to ask your Guild loan officer about the advantages of variable interest rate mortgages. We’re here to help!