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Is an Adjustable-Rate Mortgage Right for You?

Although only 2% of homebuyers opted for an adjustable-rate mortgage (ARM) in 2016,1 there’s evidence that ARMs are proving more popular with house-hunting millennials.2

Unlike a fixed-rate mortgage, whose interest rate remains the same for the life of the loan, an ARM’s rate is guaranteed for only a set period—say, five or seven years—before rising or falling in tandem with prevailing interest rates.

It’s that initial rate that can make ARMs so attractive to millennials and other potentially cash-strapped purchasers. “ARMs typically start out at a lower interest rate—and thus a lower monthly payment—than their fixed-rate counterparts,” says Tony Sachs, vice president of lending products and strategy at Charles Schwab Bank.

Indeed, in October 2017 the average rate on a 30-year fixed-rate mortgage was 3.80%, compared with 3.31% for a 5/1 ARM3 (that is, a loan whose interest rate is fixed for the first five years and adjusted once a year thereafter for the life of the loan). For a $350,000 loan, that means a savings of almost $100 a month, or about $6,000 over the initial five-year term.

“ARMs can make a lot of sense for home buyers who plan to upgrade in a few years,” Tony says.

The bottom line: Opting for ARMs can offer lower initial monthly payments in the near term, while their fixed-rate counterparts provide more stability over the long haul.

1Sean Becketti, “Why America’s Homebuyers & Communities Rely on the 30-Year Fixed-Rate Mortgage,” Freddie Mac, 04/10/2017.

2Robyn A. Friedman, “Mortgages Undergo an Attitude Adjustment,The Wall Street Journal, 07/05/2017.

3Claes Bell, “Mortgage Rates Trend Higher for Monday,”, 10/02/2017.

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Important Disclosures

Nothing herein is or should be interpreted as an obligation to lend. Loans are subject to credit and property approval. Other conditions and restrictions may apply.

Schwab clients may be eligible for advantaged loan pricing based upon their balances at Schwab.

Home lending is provided by Quicken Loans, Inc., the home loan provider of Charles Schwab Bank. Quicken Loans, Inc., Equal Housing Lender, is not affiliated with The Charles Schwab Corporation, Charles Schwab & Co., Inc., or Charles Schwab Bank. Deposit and lending products are offered by Charles Schwab Bank, Member FDIC and Equal Housing Lender.

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers are obtained from what are considered reliable sources. However, their accuracy, completeness and reliability cannot be guaranteed.

This information is not intended to be a substitute for specific individualized tax, legal, estate-planning or investment-planning advice. Where specific advice is necessary or appropriate, Schwab recommends consultation with a qualified tax advisor, CPA, financial planner, attorney or investment manager.


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