23 Jan Could an adjustable rate mortgage make sense for me?

Q. Is there an advantage to taking an adjustable rate mortgage? I bought my house last year and unfortunately have a 7% mortgage. With higher prices for everything, my budget is super tight and I’m seeing adjustable rates at 5.5% for seven years. I’m thinking this could save me money every month. What do you think?
— Homeowner

A. The future of interest rates have certainly been in the news a lot lately.

There are times when taking an adjustable-rate mortgage makes sense.

An adjustable-rate mortgage is one where the initial rate is lower than that of a similar fixed-rate mortgage, said Howard Hook, a certified financial planner and certified public accountant with EKS Associates in Princeton.

As you mention in your example, the fixed rate is 7% and the adjustable rate you have seen is 5.5%. The initial adjustable rate remains for a period of time and then “adjusts” to a fixed rate – in your example, after seven years, Hook said.

“One simple reason to get an adjustable-rate mortgage is if you do not intend to remain in the home before the initial adjustable-rate term expires,” he said. “While it is hard to predict how long you will remain in the home, there are certain times when it can be more predictable.”

Temporary job relocations or approaching retirement with a desire to downsize or move out of town are two that come to mind, he said.

But what if you intend to stay longer, or you are unsure of how long you will stay in the home?

Then, financially, it becomes trickier.

“If you intend to stay longer or just aren’t sure, then you should determine if you would be able to afford the higher monthly payment if the rate were to increase after the initial term expires,” he said. “You should determine this not just for the first year after the term expires, but for several years thereafter, assuming the rate continues to rise.”

Before making that decision, you would need to know a few things: How much the interest rate can increase annually after the adjustable rate initial term period expires, and what is the maximum rate it can adjust to?

“If you intend to stay in the house longer than the initial term period of the adjustable-rate mortgage, and circumstances are not likely to change such that you would struggle handling a higher monthly payment when the rate adjusts, then you should not go ahead with the adjustable-rate mortgage,” Hook said.

Of course, if interest rates move lower over time, you can also plan to refinance the mortgage to another fixed rate loan.

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This story was originally published in January 2026. 

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.