Navigating Freedom Mortgage Home Equity Loans and Adjustable Rate Rider Mortgages
As homeowners build equity in their properties, they often seek smart ways to tap into that wealth to fund major life goals—home improvements, debt consolidation, education costs, or unexpected emergencies. Two financial tools stand out for their accessibility and flexibility: the home equity loan and the adjustable rate rider mortgage.
In this guest post, we’ll explore how Freedom Mortgage home equity loan options work, break down the pros and cons of an adjustable rate rider mortgage, and guide you in choosing the best financing solution based on your financial goals and risk tolerance.
What Is Home Equity?
Before diving into loan types, it’s essential to understand the concept of home equity. Home equity is the portion of your property that you truly own—calculated as the difference between your home’s market value and the balance of your mortgage.
For example:
Home Value: $400,000
Remaining Mortgage: $250,000
Your Equity: $150,000
As you pay down your mortgage or as property values rise, your equity grows, making you eligible for equity-based financing options.
Freedom Mortgage Home Equity Loans: Cash-Out Refinance Options
While Freedom Mortgage may not offer traditional second-position home equity loans (like some credit unions or banks), it provides a powerful alternative: the cash-out refinance.
What is a cash-out refinance?
This method replaces your current mortgage with a new, larger loan—paying off the old balance and giving you the difference in cash. It’s a common way to access your equity without taking on a separate loan.
Freedom Mortgage’s equity solutions include:
Fixed or adjustable rate options
Competitive interest rates for qualified borrowers
Loan-to-value (LTV) allowances depending on credit score and loan program
FHA, VA, and conventional refinance programs
This approach gives you access to a lump sum of cash and can often result in a better rate or improved loan terms if market conditions are favorable.
The Adjustable Rate Rider Mortgage Explained
An adjustable rate mortgage (ARM) starts with a fixed interest rate for a set period—commonly 3, 5, 7, or 10 years—before the rate adjusts periodically based on market indices.
The adjustable rate rider is a document included in the mortgage agreement that outlines:
When the interest rate begins to change
How frequently adjustments occur
The index used (such as SOFR)
Margin and caps (limits on how much the rate can change)
Example: 5/1 ARM with a 2/2/5 Cap Structure
Fixed for the first 5 years
Adjusts annually after that
Can increase 2% at the first adjustment, 2% annually, and no more than 5% total above the initial rate
Benefits of Freedom Mortgage Adjustable Rate Mortgages
Freedom Mortgage offers ARM options with adjustable rate riders designed to help homeowners manage early affordability while staying flexible.
Why choose an ARM?
Lower Initial Interest Rate: Often 0.5%–1% lower than fixed-rate loans.
Lower Early Payments: Ideal for those planning to move or refinance before the rate resets.
Qualification Boost: Lower initial payments may help you qualify for a larger loan amount.
For borrowers expecting rising income, short-term homeownership, or market-savvy refinancing strategies, an ARM offers significant cost savings during the initial term.
Comparing Fixed-Rate, ARM, and Cash-Out Refinance Options
| Loan Type | Rate Type | Cash Access | Best For |
|---|---|---|---|
| Fixed-Rate Mortgage | Fixed | Limited unless refinancing | Long-term stability |
| Adjustable Rate Mortgage | Variable after initial period | Possible with cash-out | Short- to medium-term owners |
| Cash-Out Refinance | Fixed or Adjustable | Yes | Accessing home equity |
A Freedom Mortgage cash-out refinance can use either a fixed or adjustable rate structure. If you opt for the adjustable version, the adjustable rate rider will govern future changes.
Risks and Considerations
Understanding the potential downsides of each option is crucial:
Home Equity Loan / Cash-Out Refinance Risks:
Foreclosure Risk: Your home is collateral.
Closing Costs: Similar to your original mortgage.
Market Risk: Falling property values can reduce or eliminate your equity.
Adjustable Rate Mortgage Risks:
Payment Shock: Monthly payments may rise significantly after the fixed period.
Interest Rate Volatility: Market conditions can push rates higher than expected.
Budgeting Challenges: Harder to plan finances long-term.
Always read your adjustable rate rider carefully. Know your caps, index, margin, and the worst-case payment scenario before signing.
Who Should Consider These Loans?
Choosing the right loan product depends on your financial situation and long-term goals.
Ideal candidates for Freedom Mortgage cash-out refinance:
Homeowners with significant equity
Those with high-interest debts to consolidate
Borrowers planning renovations or major purchases
People seeking to refinance to a better rate and take out cash
Ideal candidates for adjustable rate rider mortgages:
Buyers planning to sell or refinance before rate resets
Borrowers confident in rising income over time
Risk-tolerant homeowners seeking initial payment relief
Real-Life Example: Using Equity Wisely
Let’s say Michelle in Lansing, MI has $100,000 in equity. She chooses a Freedom Mortgage cash-out refinance with a 5/1 ARM to:
Pay off $25,000 in credit card debt
Upgrade her kitchen for $30,000
Set aside $10,000 for her child’s college fund
With a lower interest rate than her existing 30-year fixed mortgage, her monthly payment increases only slightly—while eliminating high-interest debt and increasing her home’s value.
Even after the rate adjusts in year six, she plans to refinance again or sell—making the ARM an ideal short-term fit.
Tips for Success
Check Your Credit: Better scores = better rates and LTV allowances.
Shop Multiple Offers: Compare Freedom Mortgage with other lenders.
Understand Your Rider: Know how and when your rate adjusts.
Evaluate Long-Term Plans: Don’t choose an ARM if you’re unsure where you’ll be in 5–7 years.
Consult a Loan Officer: Personalized advice is essential, especially with variable-rate products.
Final Thoughts: Make Equity Work for You
A Freedom Mortgage home equity loan, especially through a cash-out refinance, can be a powerful tool to unlock the value of your home and take control of your financial future. Meanwhile, an adjustable rate rider mortgage offers flexibility and cost savings for the right borrower.
Whether you’re upgrading your home, consolidating debt, or preparing for future expenses, the key is understanding your options and choosing a loan that matches your financial strategy and lifestyle.
Work with a trusted loan advisor, read your mortgage documents carefully—especially the adjustable rate rider—and make your equity work smarter, not harder