Adjustable-Rate Mortgages (ARMs): A Q&A with Brandon Wheatley

GECU Voices brings you thought leadership and insight from experts within the Credit Union.

If you’re ready to jump into the Tri-State housing market, take a few minutes to familiarize yourself with adjustable-rate mortgages. Below, General Electric Credit Union (GECU) Mortgage Loan Originator Brandon Wheatley walks through some common questions about this home financing option. Use his insight to build your baseline knowledge, then schedule an in-branch appointment with a team member to discuss your unique needs as a borrower.  

What’s the difference between a fixed- and adjustable-rate mortgage?

Brandon: Here at GECU we offer fixed-rate mortgages with 30-, 25-, 20-, or 15-year terms. This means for the life of the loan – from day one to the end of maturity – the rate and your monthly payment will not change.  

“ARM” stands for adjustable-rate mortgage. Some people get confused by the “adjustable” part because they think this means the rate is going to start changing day one or next month, etc... That's not the case. All of our ARMs – and we offer 3-, 5-, 7-, and 10-year ARM options –are actually 30-year amortization loans, they’re just fixed for a certain time period. 

For example, a 3/1 ARM means the rate is fixed for the first three years. Then, the rate can adjust on a yearly basis (which is represented by the “1” in 3/1) for the remaining 27 years of the 30-year loan term.

Are ARMs risky? 

Brandon: While it’s true the initial fixed period does expire, that doesn’t necessarily make these types of loans riskier than a fixed-rate loan – they’re just different! In 2020, someone with an ARM may have actually seen their rate adjust down, which some people don’t realize. The rate on fixed-rate loans did not go down in tandem, meaning many individuals had to refinance their mortgages to take advantage of the rate environment. In fact, the number of refinancing applications almost doubled from 2019 to 2020.¹  

In today’s high-rate environment, homebuyers may need to think about their lending options more strategically. They may take an ARM loan now but plan to refinance in the next three or four years when rates go down. But even before that time comes, you can rest easy knowing ARMs have a cap that determines how high the interest can increase over the life of your loan. 

Do ARMs make sense in the current rate environment? 

Brandon: It’s the perfect time to take advantage of the adjustable-rate mortgages GECU offers. Back in 2020 when COVID hit and the rate on a 30-year fixed loan dropped down to as low as 2.875%, I didn't do a lot of ARMs. They were all fixed because people wanted to lock in that great rate. But as rates have drastically climbed up, it makes sense now for a borrower to choose an ARM. While rates are higher across the board, they are typically lower on ARMs than fixed-rate mortgages. As a result, the monthly payment is comparably lower.  

What that means is the homebuyer has a lot more buying power to go out and purchase a more expensive home. They have a lower rate and monthly loan payment. And they would ideally refinance two or three years down the line to a fixed-rate product when rates come back down. 

If you’re interested in learning more, view our ARM mortgage rates online and schedule an in-branch appointment. We’ll crunch the numbers and help you identify the better deal for you and your family. You’ll have a dedicated point of contact to ensure you always know who to call no matter where you are in your homebuying journey.