When is refinancing with an Adjustable Rate Mortgage more beneficial?

If you plan on staying in the house a short amount of time, an Adjustable Rate Mortgage (ARM) could be more beneficial since if offers lower monthly principal and interest payments. If you were using a three or five-year ARM, the rate is fixed for those periods of time. For example, if you have a five-year ARM, the rate is fixed for five years and will adjust to the current rate after the fixed-rate period is up. But, there is borrower protection in the form of annual and lifetime rate caps. So, if you're going to be in the home less than five years, there'd be no reason to pay the higher rate. An ARM can also qualify you for a higher mortgage amount which means you can buy a larger or more expensive house. And, with an ARM, you may not have to refinance when the interest rates drop.