An adjustable-rate mortgage may be the best option at this time to lower your mortgage rate

DDA Mortgage • October 31, 2022

If you're looking for a mortgage, you have a lot of options. And one of the most popular choices, when interest rates are higher, is an adjustable-rate mortgage (ARM). But what exactly is an ARM? And why do so many people choose to get them as rates climb?



What you need to know about adjustable rate mortgages (ARMs)


Let's start with the basics: ARMs are mortgages that have interest rates that change over time.


Typically, an ARM will start off at a low rate and will increase or decrease as interest rates increase or decrease. Because adjustable-rate mortgages are adjusted, there is less risk to the lender, so they offer more favorable rates than your typical 30-year fixed mortgage.



Your Adjustable Mortgage Rate (ARMs) Options


In general, you want to get an adjustable-rate mortgage to take advantage of the lower initial rate. When rates drop, you want to refinance into a fixed mortgage with a lower rate. To avoid rate fluctuation in an ARM, we suggest applying for a 5 year or 7 year adjustable rate mortgage where you are locked into a known interest rate for 5 years or 7 years.



How Does A 5-year Adjustable Rate Mortgage Work?


A 5-year adjustable-rate mortgage (ARM) is a type of mortgage loan that's fixed for 5 years, then adjusts annually over the course of the remaining term.


The idea behind an ARM is that you'll be able to afford a higher home price than you might be able to with a fixed-rate mortgage because the monthly payment will be lower during the first five years of your loan. This allows you to buy a house without having to put more money down in order to qualify for a lower interest rate.



How Does A 7-year Adjustable Rate Mortgage Work?


Like the 5-year ARM, a 7-year adjustable rate mortgage is a type of mortgage loan that's fixed for 5 years, then adjusts annually over the course of the remaining term.


A 7-year ARM has an introductory period, or "honeymoon," where you pay a fixed interest rate for the first seven years of your loan. At the end of that time, your interest rate will be adjusted yearly based on market conditions and other factors.


If you're looking for a lower initial monthly payment, this is one of the best ways to get it. But if you want to lock in a specific rate for the life of your loan, you may want to look at other options.



Fixed Rate Mortgage vs. Adjustable Rate Mortgages


What's more important to you—getting the lowest monthly payment or avoiding any uncertainty?

In the short term, ARMs are the best for getting you the lowest monthly payment now. Fixed-rate mortgages guarantee that your principal and interest payments will not change. There are risks to both choices, but the most important thing to remember is you can refinance and go from an ARM to a fixed mortgage or from a fixed mortgage to an ARM.



When Shopping For A Mortgage Don't Lose Sight Of What's Important


There are so many great things about buying a home: You can make it your own, you can start building equity, and it's an investment in your future.


Rates are going to drop in the future, and when they do, you'll be glad you got a great deal on your home now! Adjustable rate mortgages are just another tool to get you there.


If you are shopping for a home, call us now (727) 784-5555. We will show you all your options, not just the traditional ones.


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💡 Option 1 — Cash-Out Refinance Meaning: Replace your current mortgage with a larger loan and take the difference in cash. Bankrate Often lower interest rate than a second mortgage because it replaces your first mortgage. Rocket Mortgage Can consolidate debt (e.g., high-interest credit cards) into one loan. Bankrate If you refinance to a lower rate, you can reduce monthly payments while getting cash. Sunflower Bank When it might make sense: ✔ You currently have a higher interest mortgage (e.g., 7%+) and could refinance into ~6% ✔ You want a single payment ✔ You’re using the cash for productive purposes (debt consolidation, home improvements) 🪪 Option 2 — Second Mortgage / Home Equity Loan (HELOC) Meaning: Take out a loan on top of your existing mortgage without replacing it. Better Mortgag Keeps your current mortgage rate and terms if they’re favorable. Better Mortgage You borrow only what you want — no resetting your main mortgage. Often easier/faster to access cash than a full refinance. 🔁 Option 3 — Reverse Mortgage Meaning: Available only if you are typically 62+ — you borrow against home equity and don’t make monthly principal/interest payments. Balance is due when you move or pass. FHA Can provide steady cash flow or a lump sum with no monthly mortgage payments. Useful in retirement when income is fixed. When it might make sense: ✔ You are retiree near retirement ✔ You want to boost retirement income without monthly payments ✔ You don’t plan to leave the home as a large inheritance 📊 Which Option Should You Consider (High-Level Guidance) ➡ If your goal is lower monthly payments + access to cash: → Cash-out refinance could be ideal if today’s rates are lower than your current mortgage. ➡ If you want cash but want to keep a great existing rate: → Second mortgage or HELOC may be better than resetting your core mortgage. ➡ If you are 62+ and need income without monthly payments: → Reverse mortgage might be worth exploring but only with deep planning (especially for heirs). 🧠 Bottom Line (2026 Real-World Thinking) ✔ Mortgage rates are lower than recent highs but not back to historic lows, meaning refinancing could still save money if your current rate is significantly higher than ~6%. Rocket Mortgage ✔ Cash-out refinance is often cheaper than a second mortgage because of lower interest, but you must be okay restarting your loan term. Rocket Mortgage ✔ Reverse mortgages are specialized tools — great for some retirees but not suited to everyone. FHA tune in and learn https://www.ddamortgage.com/blog didier malagies nmls#212566 dda mortgage nmls#324329 
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