But it also takes them longer to build equity. Housing industry experts recommend 30-year mortgages for buyers planning to stay in their homes for several years. A 15-year mortgage yields higher monthly payments but faster growing equity. The interest rates on these loans can change, so monthly payments can change as well. But most ARMs have caps to regulate the amount the interest rate for a loan can increase or decrease, regulating interest rate adjustments in any specified adjustment period and across the life of the loan.
Interest rates are usually lower for ARMs than for fixed rate loans for the first few years.
So ARMs allow buyers to purchase more expensive homes than they could with fixed-rate mortgages. These loans can either work like fixed or adjustable rate mortgages for the first several years. But once that agreed upon time period ends, the borrower owes one large payment - sometimes the remaining balance on the loan. When selecting your loan, consider interest rates, monthly payments, closing costs, downpayment requirements, overall costs and fees. With an ARM, bear in mind how often the rates adjust, how much they adjust, and caps.