Though mortgage rates have bounced around lately, rising and then falling shortly after, overall, these borrowing rates have remained in the 6% range for the better part of the last few years — at least on 30-year conventional fixed-rate mortgage loans. This rate landscape, in turn, hasn't been particularly enticing to borrowers, many of whom would prefer for rates to drop closer to the 3% range that was common at the height of the pandemic.

Adjustable-rate mortgage (ARM) loans, on the other hand, are another story entirely. These loans come with variable rates that are lower overall, which can make them seem like a better deal, at least on the surface. Case in point? The average rate on a 5/1 adjustable-rate mortgage was just 5.60% last week, according to the Mortgage Bankers Association. 

For buyers and borrowers on a tight budget, that 1% difference can look pretty tempting. But ARMs come with numerous risks to consider — especially in today's economy. So, should you consider one for your home purchase or refinance? Here's what experts have to say about it.

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Why adjustable-rate mortgages could be worth considering now, experts say

The main reason you might want to consider an ARM loan right now comes down to interest rates. On 30-year, fixed-rate loans, you're looking at an average rate of about 6.4% currently. On a 5/1 ARM, it's closer to 5.6%. 

That rate difference may not seem substantial, but the small difference in rates can ultimately have a meaningful impact on your monthly payment — and, in turn, your household cash flow. And in a market where gas prices are soaring and inflation has spiked once again, it could provide some much-needed breathing room.

For example, on a $300,000 loan,  a 6.37% rate would come with a monthly payment of about $1,871. At 5.60%, that monthly payment would drop to $1,722, freeing up about $150 in the budget each month. 

"In today's higher-rate environment, the lower introductory rate that comes with an ARM can help reduce monthly payments and improve affordability," says Jeff DerGurahian, head economist at loanDepot. "It can translate into meaningful monthly savings upfront."

There's also a chance ARM rates could drop lower in the near-term, making them even more attractive to borrowers on a budget this year. 

"I expect ARM rates to fall as we progress further into 2026," Andrew Marquis, senior vice president at CrossCountry Mortgage, explains.

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Why adjustable-rate mortgages may not be the right move, experts say

While the rate differential can be enticing, there are reasons ARM loans might not be a good move right now, too — and those deserve careful consideration before pursuing one of these loans. 

To start, ARM loan rates, by the very nature of the loan, change often after the initial fixed rate period ends. Because rates on these loans are variable, that means those shifting rates can and will impact the cost of your loan over time. That can be beneficial in a dwindling rate environment, but if things take a turn, it could cost you more than expected. 

And, while Marquis expects them to fall more this year, there's no guarantee these rates will stay low over the long run. By the time your interest rate adjusts a few years down the line, you could be looking at a much higher payment than you've budgeted for.

Further complicating the issue is that rates are particularly volatile right now due to the ongoing geopolitical conflicts around the world. Should these conflicts continue, it could send rates upward. 

"Market interest rates have shown further volatility in recent weeks because of geopolitical conflicts, oil prices, inflation, and labor markets," Marquis says. "Pricing can shift day to day."

If rates do move higher, the monthly payments on an ARM loan could get out of hand for many borrowers, particularly considering today's high gas prices and rising inflation, which climbed again in April, according to the latest data. 

"A lot will depend on the economy, what the Federal Reserve does next, and how tensions in the Middle East play out," DerGurahian says. "If the Fed signals that rates may stay higher for longer, ARMs could become less appealing because they're more sensitive to the short-term rates tied to the Federal funds rate. In that kind of environment, the savings compared with a fixed-rate mortgage could start to narrow."

How to decide if an adjustable-rate mortgage makes sense for your needs

Whether or not an adjustable-rate mortgage is right for your situation will depend, in large part, on your specific financial circumstances and homeownership goals. If you have the funds to cover a potentially higher payment while accounting for the current inflationary conditions and higher prices that come with it, then an ARM loan could be a good fit. Or, if you expect your earnings to increase, it can be a smart idea.

"It can also make sense for borrowers who expect their income to increase over time," DerGurahian says. "For example, someone early in their career, like a medical resident, may appreciate the lower payments upfront while knowing their earning potential is likely to grow in the years ahead."

An ARM loan may also be a good move if you're planning to sell the home before your rate can adjust. If you're buying your forever home, though, this type of loan may not be wise, even if you think you may refinance before your rate can adjust. 

"Buying your forever house with an ARM solely for a better payment with the hope of refinancing in the future is not a solid plan, primarily because it relies on hope," says Mike Nielsen, home loan specialist for Churchill Mortgage. "Hope is not a plan. What could work is if you buy the forever home with an ARM and plan to make aggressive payments during the first fixed portion to pay your home off quicker."

The bottom line

Adjustable-rate mortgages have clear benefits in today's market, offering lower initial rates and more affordable monthly payments, at least at the start. But these options also come with drawbacks and can pose a real risk if you don't go into it with your eyes wide open and a plan in place. 

So, before making your decision, run the numbers on both fixed-rate and adjustable-rate scenarios, and make sure you understand what rate caps the ARM loan would come with. You can also talk through your options with a mortgage pro.

"As with any mortgage decision, understanding how rate changes could affect your payment, and how much flexibility you have in your budget matters most," DerGurahian says. "A mortgage professional can help you weigh those risks and decide whether an ARM makes sense for you."