My 5/1 ARM in McKinney Is About to Reset — Should I Refinance Into a Fixed Rate Now That Mortgages Just Hit 7%, or Let It Adjust?
My 5/1 ARM in McKinney is about to reset — should I refinance into a fixed rate now that mortgages just hit 7%, or let it adjust? There's no universal answer, but for most McKinney homeowners the right move depends less on the headline 7% rate and more on where your specific ARM's new rate will actually land.
If you bought in McKinney, Trinity Falls, Stonebridge Ranch, or Craig Ranch around 2019 or 2020 when 5/1 ARMs were a popular way to land a lower introductory rate, you're now staring down the reset most of those loans were always going to hit. The timing feels brutal: rates are back near multi-decade highs, and your fixed-rate period is ending right as refinancing looks expensive. But that's exactly the trap — comparing today's refi rate to your old teaser rate, instead of comparing it to what your ARM is actually about to adjust to.
Your ARM's new rate isn't randomly set. It's tied to an index (often SOFR) plus a margin spelled out in your original loan documents, and it's also bound by caps that limit how much it can jump in one adjustment and over the life of the loan. For some borrowers, that capped adjustment lands close to, or even below, a new fixed rate. For others, it's a real payment shock worth avoiding. This post walks through how to actually run that comparison before you decide, what Collin County's current housing and rate environment means for your options, and why the math — not the headlines — should drive this decision.
Start With Your Loan Documents, Not the News
Before you decide anything, pull your original ARM note and find three numbers: the margin, the index it's tied to, and the adjustment caps. These determine your new rate far more than whatever the national average mortgage rate is doing this week. A 7% headline rate from a lender doesn't automatically mean your ARM is about to adjust to 7% — it could land higher or lower depending on your specific terms.
How the Adjustment Actually Gets Calculated
Most 5/1 ARMs add a fixed margin to a floating index rate, then apply a cap — commonly a limit like 2% per adjustment and 5-6% over the life of the loan. If your original rate was in the 3% range, even a capped jump could push you into the 6-8% range at reset, which is worth knowing precisely rather than estimating.
- Find your margin and index type in the ARM rider of your loan documents
- Check the current value of that index to estimate your new rate
- Confirm your periodic and lifetime adjustment caps
- Calculate your new estimated payment and compare it to a 30-year fixed quote
The Case for Refinancing Into a Fixed Rate Now
Refinancing makes the most sense when the math shows your ARM will adjust to a rate close to or above current fixed rates anyway — in that case, locking in payment certainty removes the risk of further increases at your next adjustment in a year. It also makes sense if you plan to stay in your McKinney home long-term, since ARMs are generally built for shorter holding periods, not for riding out multiple rate cycles.
Refinancing isn't free, though. Closing costs, a new appraisal, and potentially a higher rate than your current ARM's first adjustment can all eat into the benefit, so it's worth having a lender run a true break-even timeline before you commit.
The Case for Letting It Adjust
If your caps are tight and the index has cooled since you first locked in, your ARM might reset to a rate that's actually comparable to or better than a new fixed-rate refinance — in which case paying closing costs to refinance doesn't pencil out. This is more common than homeowners assume, especially for ARMs originated with generous margins or lower lifetime caps.
Letting it adjust can also buy you time if you expect to sell or relocate within Collin County in the next year or two, since you'd absorb the adjustment only briefly before the loan is paid off through a sale anyway.
What This Looks Like in McKinney and Collin County Right Now
Local context matters here. McKinney's housing market has seen notable momentum — from new employer announcements to McKinney's 75071 zip code ranking among the hottest in the country for movers — which can affect both your refinance appraisal value and your resale timeline if you're weighing a move instead of a refinance. If rising values have built equity in your Stonebridge Ranch, Craig Ranch, or Trinity Falls home, that equity can also improve the terms you're offered on a refinance.
If you're also watching rates for a different reason — say, you're mid-process on a new purchase — this related post on whether a rate lock float-down option is worth paying for covers a similar rate-timing decision. And if your bigger concern is payment shock generally rather than the ARM reset specifically, this post on handling a sudden mortgage payment increase from an escrow shortage walks through how to budget around an unexpected jump.
A Quick Decision Checklist
- Calculate your ARM's actual new rate using your margin, index, and caps
- Get a real fixed-rate refinance quote and compare true monthly payments
- Factor in refinance closing costs and your break-even timeline
- Consider how long you plan to stay in your McKinney home
- Check current mortgage rate trends through a source like the Freddie Mac Primary Mortgage Market Survey
FAQ
Will my 5/1 ARM automatically jump to whatever rate is in the news?
No. Your new rate is based on your loan's specific index and margin, plus any adjustment caps, which can result in a rate noticeably different from the national average you see quoted in headlines.
Is refinancing always the safer choice when an ARM resets?
Not necessarily. If your caps limit the adjustment to a rate close to current fixed rates, paying closing costs to refinance may not be worth it, especially if you plan to sell or move within a year or two.
Does my McKinney home's rising value help if I refinance?
It can. More equity, built up through local appreciation in areas like Stonebridge Ranch or Trinity Falls, can improve your loan-to-value ratio and potentially the terms you're offered on a refinance.
Run the Numbers Before Your Reset Hits
Whether refinancing or letting your ARM adjust is the smarter move comes down to the specific numbers in your loan, not the rate headlines. Run your numbers on refinance vs. adjustment before your ARM resets, and reach out to Jane Clark at Keller Williams McKinney for a clear-eyed look at how your options line up with the current McKinney and Collin County market.
