Stillwater, Oklahoma home buyers learning about mortgage options

Should You Consider an Adjustable-Rate Mortgage? What Stillwater Buyers Should Know

Buying a Home Ann Morgan

An adjustable-rate mortgage (ARM) starts with a lower rate than a fixed-rate loan, then the rate can change after a set number of years. With mortgage rates near their highest since January 2025, more buyers are taking a look at them, and for the right buyer an ARM can lower the payment while they get settled. It isn't right for everyone, so here's how it works, what to weigh, and what to ask a lender.

How an ARM differs from a fixed-rate mortgage

With a fixed-rate mortgage, your interest rate stays the same for the whole loan. With an ARM, your rate is fixed for an introductory period, then it can go up or down based on market conditions.

The name tells you how it works. In a 5/1 ARM, the "5" means the rate is locked for five years, and the "1" means it can adjust once a year after that. Some newer ARMs adjust more often, so ask your lender exactly how often the rate can change. The adjustment is called the reset.

A helpful comparison is a phone or cable plan with an introductory deal. You start at a lower price, and then it changes when the deal ends.

Why buyers are looking at them

The main reason is the lower starting rate. According to Bankrate, as cited by Keeping Current Matters, ARM rates in September were more than a full percentage point below comparable fixed-rate loans. Depending on the product, that can mean roughly $150 to $300 less per month on a median-priced home. Those are national figures, and your lender can tell you what's available to you today.

Interest is growing. Data from the Mortgage Bankers Association shows about 1 in 10 mortgage applicants in October chose an ARM.

The upsides and the trade-offs

Possible upsides

A lower starting rate and payment, which can make a home more affordable now
More room in the monthly budget while you settle in, furnish, or pay down other debt
It can make sense if you expect to move or refinance before the rate adjusts. Plans change, though, so don't count on it.

Trade-offs to understand

After the introductory period, your payment can go up, not just down
Most ARMs have caps on how much the rate can rise each adjustment and over the life of the loan. Ask what they are.
A refinance is a new loan you have to qualify for, and it isn't guaranteed. Rates and your finances may be different when the time comes.
It's harder to plan for than a payment that never changes

Aren't ARMs risky? What about 2008?

ARMs got a bad reputation in the 2008 financial crisis, when some loans had very low starting payments that later jumped, and others didn't require borrowers to prove their income. Today's rules are different. Under the federal Ability-to-Repay rule, lenders must verify your income and finances with documents like pay stubs, W-2s, and tax returns. They also have to consider what your payment could be after the reset, not just the starting payment. That doesn't remove the risk of a higher payment later, but it does mean today's loans are underwritten differently.

What are your options when the rate resets?

If you have an ARM, you'd have choices when the time comes:

Keep the loan, if the new payment fits your budget
Refinance into a fixed-rate loan
Refinance into another ARM
Sell the home
Talk to your loan servicer about help or a modification

Keeping your credit and debt in good shape the whole time keeps those choices open.

Questions to ask your lender

What's the starting rate and payment for an ARM compared to a fixed-rate loan, for my loan amount?
How long is the introductory period, and how often can the rate adjust after that?
What are the caps, per adjustment and for the life of the loan?
What could my payment be at the highest rate the caps allow?
What happens if I want to refinance and rates haven't dropped?

Ask your lender to run the numbers for you, including the worst case. Then decide whether the savings are worth the risk.

Other ways to lower your payment

An ARM is one of several tools. A rate buydown paid by the seller or builder can also lower your payment, and it keeps a fixed-rate loan. See How Do Rate Buydowns Work? What Stillwater Home Buyers Should Know. To see what different rates mean for a monthly payment, try my Buyer's Purchasing Power calculator.

Want to talk through your options?

I'm not a lender, and the right loan depends on your finances and how long you plan to stay. I work with local lenders who can run your numbers every way, and I'll help you compare the payment against the homes you're considering. Reach out and we'll start there.

Thinking about moving to Stillwater? Join the Moving to Stillwater group on Facebook to ask questions and get local answers: https://www.facebook.com/groups/534271350873991

Ann Morgan is a REALTOR® with Real Estate Professionals in Stillwater, Oklahoma, specializing in new construction and OSU parent-buyer relocation. A five-time winner of Stillwater's Best Realtor award and a consistent top-3 agent in the Stillwater MLS.

This article is general information, not financial advice. Talk to a lender about your situation.

Sources: Bankrate (ARM and fixed-rate comparison) and Mortgage Bankers Association (ARM share of applications), via Keeping Current Matters. National figures.