What Are the Advantages and Disadvantages of an Adjustable-Rate Mortgage?

An adjustable-rate mortgage will have several advantages for certain borrowers. In an adjustable-rate mortgage, the variable rate can result in a lower payment in the short-term. The initial interest rate will be lower than a fixed interest rate. Therefore, if you expect to be able to repay the loan relatively quickly, then a variable rate may be the less expensive option for you. In addition, an adjustable-rate mortgage can allow you to borrow a larger amount of money if your credit score is lower. Lenders will be willing to increase the loan amount for borrowers who choose to take out adjustable-rate mortgages.

However, an adjustable-rate mortgage is risky over the long term. The borrower may face unforeseeably high interest payments and might end up in a position where making monthly payments is no longer possible.

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An adjustable rate mortgage is often preferable for short-term borrowers.