Why It's Time for Buyers to Reconsider an ARM

A homeowner who is refinancing, for instance, may have already reduced the original loan balance substantially. With a lower interest rate on the ARM and a modest loan balance, it might be possible to pay off the new ARM during the initial period with a monthly payment similar to that of the old loan.

In the same way, a buyer with plenty of resources could make extra principal payments to pay the loan off while the rate remains low.

Even if these borrowers failed to retire the debt during that initial period, reducing the debt through extra payments would reduce the pain if the rate did rise in the future. Check your numbers with this calculator .

The key, then, to making an ARM work: Be sure you can afford the payment at the maximum rate the ARM could charge, or make extra payments so you never face a burdensome payment.