Of course, your total monthly payments are apt to go up as property taxes and insurance premiums rise. The interest rate on an ARM is pegged to some sort of financial index, such as the price of Treasury notes. The lender also will have a margin, the markup added to the index to determine the new rate at each adjustment. For example, an ARM may cap the annual increase at two percentage points and the lifetime increase at six percentage points. Thus, a 6 percent ARM could climb to no more than 8 percent after the first year, and to no more than 12 percent over the life of the loan.
Some ARMs are convertible.
That is, you can convert to a fixed-rate mortgage at some specified time. Ask your credit union lender how long a window you would have for converting and what the fee would be. That lower rate may make it possible for you to qualify for a larger loan amount than you could get on a fixed-rate mortgage. You gamble that in a few years you'll be able to handle larger payments if interest rates rise. You don't know how high the rate may climb up to the specified capped limit.