Are Adjustable Interest Rates a Good Strategy? There are pros and cons to having an adjustable-rate mortgage. For the right person, an Adjustable Rate is the best option and will save many thousands of dollars but for the wrong person, an Adjustable Rate can be a disaster.

Mechanics of an Adjustable Rate

The basic idea of an adjustable-rate is that the rate fluctuates with the current market. If the economy is strong and interest rates are rising, your rate will also rise. If the economy is weak and interest rates are falling then your rate will also fall.

Loans with adjustable rates function exactly the same as those with fixed rates. Most people are familiar with fixed rates because that’s what their parents always advocated for. But Adjustable Rates do have a legitimate place in financial planning and can really help you get ahead when used properly.

Historical Track Record of Rates

Interest rates have always been a rollercoaster ride but since the early 1980’s that ride has generally trended downhill. Below is the historical graph since 1975, compliments of the

The graph clearly shows that in the short term there are periods of relative jumps in interest rates. But Overall we’ve trended downward for over 40 years. It appears that our Government and the Federal Reserve are addicted to low-interest rates and are unable to run an economy without them.

Long Term Comparison

Like most people, I used to advocate a fixed rate for stability 100% of the time. But after doing my homework I’ve come to see that adjustable rates can really be powerful tools when used with the right strategy. Don’t get me wrong, fixed rates are still the safer route but they are rarely the cheapest. Let me explain.

Imagine we have 8 homeowners who refinanced their loans at different times over the past 22 years. 4 of these people used fixed rates available at the time and the other 4 used adjustable rates. In each of the years 2000, 2005, 2010, and 2015 one of these people did their fixed rate and one person did an adjustable-rate refinance. Let’s see how these people would compare long term.

Keep in mind that adjustable-rate mortgages typically start at .5% lower than the fixed-rate option but sometimes that spread can be much larger. For this example, we’ll use a .5% variance. 

Given all of this information, at the time the loans in our example were originated these were the starting interest rates for each set.

Now fast-forward through time to see what happened. The chart below shows what each of these homeowners would have been charged in interest from the time their mortgage was started until today. Assuming they did not refinance their mortgage along the way.

Without exception, the Adjustable Rate option saved the homeowner many thousands of dollars in interest charges. This happens because our government and economy have an addiction to low-interest rates and it’s going to take a lot to break that addiction. Until that happens we will continue to see low rates time and time again which of course benefits those who have adjustable-rate mortgages.

Pros of an Adjustable Rate

The primary benefits of an adjustable-rate:

  1. The Rate usually starts lower than the fixed-rate counterpart (typically .5-1% better).
  2. The rate adjusts freely with current market interest rates which for the past 40 years have tended toward lower rates. This benefits the Adj rate mortgage without needing to refinance.

Cons of an Adjustable Rate

  1. There are periods when rates go up and when this happens the short-term costs can be painful.
  2. Monthly payment is typically tied to the interest rate so rising rates mean higher payments.


I’m not trying to advocate that you do an Adjustable Rate Mortgage. I’m just trying to illustrate that they aren’t as evil as you’ve been led to believe. And in the right situation, they could actually greatly improve your situation and save you a lot of money.

As of right now today, the near future is pointing toward higher interest rates so an adjustable rate might not be a good idea but as I’ve mentioned, long-term interest rates will not only come back down, but they’ll likely hit all-time lows once again so an adjustable rate over the next 2 years may be more expensive. But over the next 5-10 years will almost surely be cheaper.

If you or someone you love has questions about this or any other mortgage-related topics please let us know. We’re happy to be of service in any way we can.

Trevor Carlson

President – Reverse Mortgage Specialist

Heritage Reverse Mortgage


Heritage NMLS #1497455 Trevor’s NMLS #: 267962

1060 South Main Street Bldg. A Suite 101B

St George Utah 84770