An adjustable-rate mortgage (also known as a variable rate mortgage) is exactly what it sounds like – a mortgage in which the interest rate fluctuates. An increase in the interest rate means that your monthly mortgage payment will go up, while a decrease in the interest rate will make your monthly payment go down. Typically, adjustable-rate mortgages offer a low introductory interest rate – lower than the rates for a fixed rate mortgage.
This can be a better deal initially, but once the introductory offer is over, it’s difficult to predict what your monthly payments will be. This makes financial planning more difficult. If interests rates went up significantly, you could be responsible for a monthly payment you can’t afford! \
Even though adjustable-rate mortgages are riskier than fixed rate mortgages due to their unpredictability, there are some scenarios in which it might make sense to choose one. You might, for example, plan to pay off your mortgage before the introductory period is over (so you avoid dealing with fluctuating rates entirely) or you might be confident that interest rates will go down, bringing your monthly payment down with it.
Either way, before selecting a variable or fixed rate mortgage, talk to a financial professional and carefully weigh the pros and cons of each option to determine what’s right for you.
