For many homeowners, tapping into home equity is one of the smartest ways to access financing for big expenses—whether it’s renovating your house, consolidating debt, or funding major life goals. With lenders like Freedom Mortgage offering competitive products, and options like the adjustable rate rider mortgage, homeowners have more flexibility than ever before.
In this post, we’ll explore how a Freedom Mortgage home equity loan works, the role of an adjustable rate rider, and what you need to know before choosing between fixed-rate and adjustable-rate options. We’ll also weigh the pros and cons to help you make a confident, informed decision.
What Is a Home Equity Loan?
A home equity loan is a type of second mortgage that allows you to borrow money against the equity you’ve built in your home. Unlike a home equity line of credit (HELOC), which works like a credit card with variable access, a home equity loan provides a lump sum payment upfront and typically comes with a fixed interest rate and a fixed term.
Let’s break this down:
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Equity is the difference between your home’s current market value and your remaining mortgage balance.
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For example, if your home is worth $400,000 and you owe $250,000, your equity is $150,000. You may be able to borrow a percentage of that equity, depending on your lender and financial profile.
Freedom Mortgage Home Equity Loan Overview
Freedom Mortgage is a well-established lender that offers various mortgage products, including refinance options and home equity solutions. While they primarily focus on first mortgages, they also provide cash-out refinance programs that act similarly to home equity loans.
With Freedom Mortgage’s equity-based options, homeowners can:
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Access funds for home improvements, college tuition, or medical expenses.
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Consolidate high-interest debts into a single, lower-interest loan.
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Take advantage of competitive rates with different term lengths.
While they may not offer a traditional “home equity loan” as a standalone product, Freedom Mortgage’s cash-out refinance allows borrowers to convert home equity into cash while refinancing their existing mortgage—sometimes with better rates or terms.
What Is an Adjustable Rate Rider Mortgage?
An adjustable rate rider is a clause added to a mortgage agreement that outlines the conditions under which your loan’s interest rate may change over time. It typically applies to adjustable-rate mortgages (ARMs) and is attached as an addendum to your loan contract.
Here’s how it works:
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You may start with a low introductory interest rate (often lower than fixed-rate options).
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After the introductory period (usually 3, 5, 7, or 10 years), the rate adjusts periodically—typically every year—based on a financial index such as the LIBOR or SOFR.
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The rider explains the adjustment frequency, rate caps, and calculation method.
For example:
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A 5/1 ARM means your interest rate is fixed for five years, then adjusts every year afterward.
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If your adjustable rate rider includes a 2/2/5 cap structure, that means:
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The first adjustment can’t exceed 2%.
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Each subsequent annual adjustment can’t exceed 2%.
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The total increase over the life of the loan is capped at 5%.
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Why Homeowners Choose Adjustable Rate Rider Mortgages
There are several reasons homeowners might choose a mortgage with an adjustable rate rider:
1. Lower Initial Rates
ARMs often come with lower initial interest rates than fixed-rate loans, making them attractive for short-term homeowners or borrowers expecting to refinance.
2. Lower Monthly Payments
The reduced introductory rate means lower initial monthly payments, which can help with affordability in the early years of the loan.
3. Flexibility for Future Plans
If you plan to sell the home or refinance within a few years, an ARM can save you money upfront without being exposed to long-term rate risk.
Freedom Mortgage and Adjustable Rate Options
Freedom Mortgage offers adjustable-rate mortgage options for qualified borrowers, including conventional and VA ARM loans. The adjustable rate rider attached to these products specifies:
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When and how the rate will change
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Maximum rate increases
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How the new rate is calculated
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Disclosure of possible future payments
These details help protect consumers by ensuring they understand the risks and benefits of a fluctuating mortgage rate.
Home Equity Loan vs. Adjustable Rate Rider Mortgage: Which Is Right for You?
Choosing between a home equity loan (or cash-out refinance) and an ARM with an adjustable rate rider depends on your financial goals, risk tolerance, and timeline.
| Factor | Home Equity Loan | Adjustable Rate Rider Mortgage |
|---|---|---|
| Interest Rate | Fixed | Variable after introductory period |
| Best For | Long-term projects, stability | Short-term ownership, refinancing plans |
| Monthly Payments | Predictable | May increase over time |
| Risk | Low | Medium to High |
| Upfront Cash | Lump sum | Often bundled with refinancing |
| Equity Access | Based on home equity | Based on refinancing structure |
If you need predictable payments and long-term security, a Freedom Mortgage cash-out refinance may suit your needs. If you’re comfortable with some risk and plan to move or refinance in a few years, an ARM with an adjustable rate rider might save you money in the short term.
Risks to Watch Out For
When considering either option, be aware of the potential downsides:
For Home Equity Loans or Cash-Out Refinance:
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You’re using your home as collateral. Missed payments can result in foreclosure.
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If property values drop, you could owe more than your home is worth.
For Adjustable Rate Mortgages:
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Payments can increase significantly after the initial rate period.
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Budgeting becomes more difficult due to variable monthly payments.
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Rising interest rates can affect affordability and refinancing opportunities.
Always read the fine print in the adjustable rate rider, and make sure you understand what could happen in the worst-case scenario.
Tips Before You Borrow
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Compare Offers: Don’t settle for the first quote. Get offers from at least three lenders.
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Know Your Credit Score: Better scores unlock better rates.
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Understand Fees: Ask about closing costs, origination fees, and prepayment penalties.
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Read the Rider: The adjustable rate rider is legally binding—review it carefully.
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Plan for the Future: Choose a loan that matches your expected time in the home.
Final Thoughts
Whether you’re considering a Freedom Mortgage home equity loan through cash-out refinance or exploring an adjustable rate rider mortgage, the key is aligning the product with your long-term financial strategy.
Freedom Mortgage offers a variety of flexible solutions for homeowners looking to unlock home equity or find the right mortgage structure. Just be sure to weigh the pros and cons of fixed vs. adjustable options, and consider how interest rate fluctuations could impact your future.
By doing your research, asking the right questions, and working with an experienced lender, you can confidently leverage your home’s value to meet your financial goals—without surprises down the road.
