Does an ARM loan make sense this February? Here's what experts say

Today's homebuyers face a tough market. Mortgage rates hover between 6% and 7% currently, while home prices stay stubbornly high. This combination has pushed homeownership out of reach for many Americans, forcing them to look beyond conventional mortgage loan financing.

The Federal Reserve could implement more rate cuts this year, but most experts don't expect relief in the near term. So if you're buying a home soon, you should consider all your mortgage options now. While many choose 30-year fixed-rate conventional loans, adjustable-rate mortgages (ARMs) could be a smart alternative.

But is an ARM loan the right choice this month? We asked lending professionals to weigh in on this — and more importantly, who should consider them. 

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Does an ARM loan make sense this February? Here's what experts say

"ARM loans can make great sense at this time," says Dean Rathbun, executive vice president of United American Mortgage Corporation. They offer a secure fixed rate for three, five, seven or 10 years, which can be appealing if you don't plan to keep the loan long-term. But your financial goals and timeline will determine whether an ARM is right for you.

Below, we'll look at specific scenarios where an ARM loan might or might not work.

When an ARM loan makes sense this month

"Typically, ARMs make the most sense for those who don't plan on living in the home forever," explains Maxwell Koziol, national purchase director at Chase Home Lending.

An ARM loan could make sense this month if you fit the following criteria:

• You plan to move soon: Koziol points out that you can benefit from the lower introductory rate an ARM loan offers and sell before the rate adjusts. For example, ARMs often work well for professionals who expect to relocate for work within a few years.
• You expect interest rates to drop: "Many expect rates to decline in the coming years," notes Debbie Calixto, sales manager at loanDepot. "If that happens, an ARM could become even more beneficial, as your interest rate and monthly payments may decrease when the adjustment period begins."
• You anticipate income growth: The lower initial payments can help you buy now, while your rising income will help you handle payment adjustments later.
• You're comfortable with refinancing: Even if rates don't drop as expected, "refinancing could be an option to secure a lower payment" if needed, Calixto says.

Calixto shared a recent success story of a client who chose an interest-only ARM loan to make homeownership possible. While her budget was tight, she knew her income would increase significantly within 12 months. After reviewing various rate adjustment scenarios, she felt comfortable handling the payments even in a worst-case situation. For this client, the benefits outweighed the risks.

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When an ARM loan may not be the best choice

"If you prefer more certainty in your planning, a fixed-rate mortgage is likely better," advises Calixto.

Here are situations where an ARM loan might not be your best choice:

• You plan to stay in the home long-term: If you're tied to your location for work or family, you may not have the option to move before the rate adjusts if payments become too high.
• You have a fixed income: If your salary is expected to remain consistent or you're nearing retirement, you might struggle to handle payment increases if rates rise substantially.
• Current ARM rates aren't much lower: If ARM loan rates are close to fixed-rate mortgages, you're taking on additional risk without meaningful savings.

Factors to consider before getting an ARM loan

Mortgage veterans say to weigh the following factors before committing to an ARM loan:

• Index and margin rates: Rathbun explains that banks now use the SOFR (Secured Overnight Financing Rate) index to determine adjustable rates. A lower margin means lower payments once the loan becomes adjustable.
• Future payment scenarios: "Requesting a loan estimate from your lender could give you a better understanding of what your payments could look like over the life of the loan," says Koziol.
• Income stability: Your income pattern matters. Commission-based earnings versus steady salary increases can affect whether an ARM loan makes sense.
• Refinancing potential: Consider your future ability to refinance if necessary, based on factors such as your credit score and income growth.

The bottom line

An ARM loan could help you achieve homeownership sooner and even save on monthly payments — but only if it aligns with your long-term plans. While the lower initial rate may be tempting, you must be confident about handling potential payment changes later.

Your next steps should include comparing ARM and fixed-rate options from several lenders. Request detailed loan estimates that show different rate adjustment scenarios, and carefully review your budget and future income expectations. The ideal mortgage choice will support your homeownership goals without straining your finances.