An Adjustable-Rate Mortgage (ARM) is a home loan that typically begins with a fixed interest rate for a predetermined period before adjusting periodically based on market conditions. Unlike a fixed-rate mortgage, where the interest rate remains the same for the life of the loan, an ARM's rate may increase or decrease after the initial fixed-rate period ends.

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Common ARM programs include 5/6 ARMs, 7/6 ARMs, and 10/6 ARMs. The first number represents the number of years the initial interest rate remains fixed, while the second number indicates how often the rate may adjust thereafter. For example, a 5/6 ARM has a fixed rate for the first five years and may adjust every six months afterward.

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When adjustments occur, the new interest rate is generally determined by adding a fixed margin to a published financial index. Most ARM loans also include adjustment caps that limit how much the interest rate can increase at each adjustment period and over the life of the loan.

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Because ARMs often start with lower interest rates than fixed-rate mortgages, they may allow borrowers to qualify for a larger loan amount or reduce their monthly housing expenses during the initial fixed-rate period.

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Common Benefits

• Lower initial interest rates compared to many fixed-rate mortgages

• Lower initial monthly mortgage payments

• Potential savings during the fixed-rate period

• Increased purchasing power

• Multiple ARM options available to fit different financial goals

• Suitable for short-term homeownership plans

 

Common Uses

Adjustable-rate mortgages are commonly used by:

• Homebuyers planning to move within a few years

• Borrowers expecting future income growth

• Individuals seeking lower initial monthly payments

• Homeowners planning to refinance before the adjustment period begins

• Buyers looking to maximize purchasing power

 

Common ARM Programs

5/6 ARM

Fixed interest rate for the first 5 years, with adjustments every 6 months thereafter.

7/6 ARM

Fixed interest rate for the first 7 years, with adjustments every 6 months thereafter.

10/6 ARM

Fixed interest rate for the first 10 years, with adjustments every 6 months thereafter.

 

Is an Adjustable-Rate Mortgage Right for You?

An ARM may be a strong financing option for borrowers who do not expect to remain in the property long-term or who want to take advantage of lower initial interest rates. However, because future interest rates may increase after the fixed-rate period ends, it is important to understand both the benefits and risks before selecting this type of financing.

Our team can help evaluate your financial goals, expected timeline, and mortgage options to determine whether an Adjustable-Rate Mortgage aligns with your homeownership strategy.