What is an ARM loan?
Answered by Onias Derilus, Mortgage Capital · NMLS# 1859012 · Florida licensed mortgage broker
An ARM, or adjustable-rate mortgage, has a fixed rate for an initial period — commonly 5, 7, or 10 years — then adjusts periodically based on a market index plus a margin. The start rate is usually lower than a fixed loan.
ARMs make sense if you'll sell or refinance before the fixed period ends, or expect rates to fall. Caps limit how much the rate can move. We'll compare an ARM to a fixed loan based on how long you plan to keep the home.
A rate that adjusts
An ARM, or adjustable-rate mortgage, starts with a fixed rate for a set period, then adjusts periodically based on the market. A 5/1 ARM, for example, is fixed for five years, then adjusts yearly.
The starting rate is usually lower than a fixed loan, which can mean smaller early payments.
The risk and reward
An ARM can save money if you plan to sell or refinance before the fixed period ends. The risk is that your rate and payment could rise once it starts adjusting.
ARMs suit short-term owners and specific strategies. Reach out and we will tell you whether an ARM or a fixed loan fits your plans.