Here's What Happened When the Rate on My Adjustable-Rate Mortgage Changed

You'll often hear that signing an adjustable-rate mortgage is a risky move. And there's some truth to that.

Unlike a fixed-rate mortgage loan, where you're guaranteed the same interest rate throughout the life of your loan, with an adjustable-rate mortgage, your loan's interest rate can change over time. This means there's a chance your mortgage payments could get more expensive.

So why would anyone sign an adjustable-rate mortgage in that case? The reason is that you'll often snag a lower interest rate on an adjustable-rate mortgage than on a 30-year loan -- at least initially. If you're buying a starter home and don't expect to be there very long, it may be that by the time the interest rate on your adjustable-rate mortgage is able to change, you'll have sold it. 

But the fact that adjustable-rate mortgages can change over time isn't always a bad thing. In fact, in my case, it worked to my benefit.

My monthly mortgage payments went down, not up

Years ago, my husband and I had an adjustable-rate mortgage. Only once the time came for our loan's interest rate to adjust, guess what happened? Instead of rising, the rate on our loan went down -- and so did our monthly payments. 

Now, it happened to be that we didn't get to enjoy those lower monthly payments for all that long. The interest rate on our adjustable-rate mortgage dropped at a time when we were gearing up to sell our home. And our home happened to get scooped off the market quickly once it was listed. 

But still, it was nice to have lower mortgage payments than we were used to for a period of time. In fact, it kind of felt like someone was just handing us free money. And since we were selling our home and buying a more expensive one, having the extra money helped with our down payment.

Be careful with an adjustable-rate mortgage

Although signing an adjustable-rate mortgage worked out well for me, I will caution that if you opt for one of these loans, you should prepare for its interest rate to rise over time. Also, don't assume that refinancing out of an adjustable-rate mortgage will be a viable option. If mortgage rates are expensive at the time your loan's rate starts to adjust, that won't help.

Of course, you may be tempted to get an adjustable-rate mortgage right now due to how expensive it is to sign a mortgage. In fact, a recent survey by Rocket Mortgage found that 43% of buyers found the idea of one appealing. And in late 2022, adjustable-rate mortgages made up about 9% of all new mortgage applications. 

But if you're going to go this route, make sure to leave some wiggle room in your budget in case your rate adjusts upward over time and your monthly mortgage payments increase. And, make a point to keep your credit score in good shape so that should the opportunity arise to refinance out of an adjustable-rate mortgage, you'll be able to jump on it.