The obvious advantage of an adjustable-rate mortgage is that they carry lower interest rates during the fixed period of the loan. At the time of writing, the lowest rate advertised on a major mortgage site for a 5/1 ARM was about 3.2% compared to a rate of 3.9% for a 30-year fixed loan.

While the difference amounts to a mere 0.70 percentage points, it can make a big difference in your payment. The 30-year fixed mortgage carries a monthly payment of $943 per month, while the ARM carries a payment of about $865.

The smart thing to do might be to take out a 5/1 ARM but make monthly payments as if it were a 30-year fixed mortgage. By the end of the 5-year fixed period, the borrower will have made a much larger dent in their balance than the borrower who uses a 30-year fixed mortgage.

2. Rates may actually go down:

After roughly 40 years of broadly declining interest rates, it’s only natural to worry that rates might start creeping higher. And that just might happen. Predicting where interest rates will go from here is impossible, and I won’t pretend to have a crystal ball. But what I do know is that at any point in time, 5-year loans have almost always been less expensive than 30-year loans. That’s an edge you can count on.

3. Time is on your side: 

If you don’t plan to live in a home for 30 years, why borrow for 30 years to buy it? Borrowing on a 30-year term to finance a home you plan to live in for just five or 10 years is a losing proposition. You’ll pay thousands of dollars more in interest, and own less of your home when you sell it. Doing the math and running through different scenarios will reveal the best loan for you.