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Raise your hand if you’ve got an ARM.  Okay, I admit it—I’ve been waiting to use that one. Especially since a colleague told me the good news about his adjustable rate mortgage.

I know, I know—adjustable rate mortgages are bad.  We’ve heard it time and time again over the last few years, right?   ARMs were key in bringing about “the crisis” (it’s kind of like Lord Voldemort: the recession/depression/slowdown/market correction which shall not be named.)

But what if I were to tell you that an adjustable rate loan could actually have an upside even in today’s market?

A friend of mine—I’ll call him Cory—chose an ARM when he purchased his home several years ago.  Now, most ARM’s have a period during which the rate remains fixed; usually anywhere from 6 months to 2 years.  After that, depending on the terms of the loan, the rate begins to adjust every 6 to 12 months.

In Cory’s case, his rate adjusts every 12 months, and he just received his new rate a few weeks ago.  Under the terms of his loan, his new interest rate is equal to 2% above the current LIBOR rate…which just happened to be at 1.75%. So that means that for the next 12 months, the interest rate on his loan is just 3.75%.

Now we have heard about all of the negatives that ARM loans bring, and news cameras are constantly showing men and women who complain that they can no longer afford their homes because of skyrocketing rates.  But if you have an adjustable interest rate I would hold off before allowing yourself to join the panic-stricken throngs.  After all, if the LIBOR, Prime Rate and bonds on which adjustable rate mortgages are tied have fallen to record lows (which they have), it’s a pretty darn good bet that your interest rate has followed or will follow suit.

But if you’re still troubled, consider taking these steps:

First of all, check the terms of your mortgage that are spelled out in your paperwork.  Verify what index your loan is tied to, how often your rate can change, and any caps that might apply.  On many loans, interest rates cannot increase above a certain amount.   Depending on when you got your loan, your interest rate may cap at a very reasonable rate—and one that you are unlikely to reach any time soon.  As such, your ARM may actually be saving you more money than you first anticipated.

If you are worried about your payment increasing too much—and if you anticipate that you’ll be staying in your home for the long haul—you may want to consider refinancing to a fixed rate.  Keep in mind that there are costs associated with refinancing, so you’ll want to balance those costs against the amount you would pay if your interest rate reached its cap.  (Note: Work with a loan officer committed to providing absolute transparency in mortgage lending to keep those costs as low as possible.)

Oh, and by the way…you can put your hand down now.