4 Reasons to Consider an Adjustable-Rate Mortgage

Article originally published on May 4, 2022 and updated on July 29, 2022.

What do the Federal Reserve’s plans to make “ongoing increases” to interest rates over the coming months mean for home borrowers? A lot.

The lower-rate mortgage environment that has spurred an active homebuyer market for the past several years is changing. For the first time in 11 years, Freddie Mac reported interest rates for 30-year, fixed-rate mortgages moved above 5% in mid-April.

To find an attractive rate, home buyers and even existing owners refinancing might want to consider a shorter-term adjustable-rate mortgage (ARM).

An ARM loan gives you a set interest rate for an introductory period (often 3, 5, 7 or 10 years). After the promotional period is over, your interest rate is adjusted according to market conditions at regular intervals (often every year).

Mike Gould, Mortgage Division manager for Zions Bancorporation, offers four reasons why home buyers should explore whether an adjustable-rate mortgage is right for them.

Reason #1 to Consider an Adjustable-Rate Mortgage: Competitive Interest Rate

“For many borrowers, a 30-year mortgage is often attractive because of its longer time horizon, which can mean lower monthly payments,” Gould says. “ But in today’s rate environment, a 30-year mortgage might not be the most economical type of loan on the market. Because the rate is higher than that of a shorter-term loan, a borrower may have higher overall loan costs.”

He notes that the current rates for adjustable-rate mortgages are considerably more attractive than fixed-rate mortgages and could potentially save the borrower tens of thousands of dollars over the life of the loan.

Reason #2 to Consider an Adjustable-Rate Mortgage: Loan Durations Often Don’t Make it to 30

While 30-year mortgages are very common, it’s also not unusual for these borrowers to look for greener loan pastures over time. The typical average lifespan of a mortgage is 10 years, according to the National Association of Realtors.

Among its own mortgage clients, Zions Bank has seen historical loan durations of six years before they are refinanced. Mortgage rates rise and fall, and savvy consumers often crunch the numbers with a refinance calculator to see if refinancing can save them money. They can also evaluate an ARM compared to a fixed-rate mortgage.

Reason #3 to Consider an Adjustable-Rate Mortgage: Planning to Sell the Home Quickly

If you plan to pay off the loan or sell your home before the fixed-rate period ends, you could benefit from the lower interest rate provided. For example, military or contract employees may move to a home but expect to move after five years or so. If the home is being purchased as a fixer-upper investment to sell in the near-term, an ARM can be a solid choice.

Reason #4 to Consider an Adjustable-Rate Mortgage: Paying Off Your Mortgage Sooner

A 7/1 or a 10/1 ARM could be a good solution for those hoping to accelerate paying off their homes. Perhaps retirement is on the horizon, and a homeowner is motivated to put an end to monthly mortgage payments once they are on a fixed income.

Paying off a mortgage sooner can also potentially save thousands of dollars in interest. Another reason to consider a shorter-term ARM is to free up money for other uses — such as tackling other debts, educational expenses, or travel.

To learn more about whether a Zions Bank Adjustable-Rate Mortgage Loan* is right for you, visit the Zions Bank website or connect with a Zions Bank mortgage loan officer.

*Loans subject to credit approval. Terms and conditions apply. See a banker for details.