Could an ARM be right for you? (© Vstock/Getty Images)Click to enlarge picture

© Vstock/Getty Images

Mortgage rates continue to be at historic lows, which raises the question: Why would anyone still get an adjustable-rate mortgage?

With rates about as low as they could possibly be and with nowhere to go but up, where's the upside and logic to financing property with an ARM?

Jacqueline Racz, a loan originator with Pennsylvania-based PrimeLending, has been in mortgage banking since 1993 and has seen shifts in which consumers gravitate to various products. (Bing: Shopping for a home loan)

"Even back in the '90s when fixed rates jumped up into the nines, the ARMs were always very low in comparison," she says. "Right now they just seem so close to each other because fixed rates haven't been this low for a very long time. But ARMs are always popular for certain individuals in certain situations. Everyone is quick to jump on that 30-year fixed, but there are many scenarios to consider."

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Where ARMs were once frequently sought out by those scraping by to make a home purchase -- pitting the money saved with a lower rate against the hope that their future income would keep pace with future payment increases -- those seeking out this type of loan these days are more likely to be either wealthier or more strategic.

Racz sees three key areas where homebuyers might gravitate toward an ARM:

  • To lower payments further, especially on jumbo loans.

  • If they have a job that moves them around every few years.

  • If they know that they will be downsizing or moving — after their children finish school, for example — or no longer need the home they are in and that paying the loan off in full over 30 years is not a goal.

On a large loan amount, the difference between 4.5% on a 30-year fixed-rate mortgage and 3.25% on a 3/1 ARM can be hundreds of dollars a month, Racz says.

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"In addition to lower payments, a lot of them will allow interest-only payments, which can be a significant savings a month," she says. "When you are looking at something in the $700,000 range, going from even a point spread between the fixed and adjustable can save you about $1,500 a month."