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How to cope with higher mortgage rates

Mortgage » How To Cope With Higher Mortgage Rates

Rate roulette
Rate roulette

An even riskier option is a one-year ARM, which has an initial rate that lasts only 12 months before it begins to adjust, usually annually or monthly.

This type of loan typically has a lower rate than a 30-year fixed-rate mortgage. And lately, the initial rates on one-year ARMs have been higher than the initial rates on 5/1 ARMs in Bankrate's weekly surveys.

Thomsen says the savings on a one-year ARM aren't worth the risk.

"We would never recommend that," he says, "You only have 12 payments at a certain rate, and the difference between a seven-year rate and one-year rate is minimal."

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