Adjustable-Rate Mortgage (ARM)
An adjustable-rate mortgage (ARM) is a home loan whose interest rate is fixed for an initial period, then adjusts periodically based on a market index plus a margin.
What Adjustable-Rate Mortgage (ARM) means
Common structures are 5/6, 7/6, and 10/6 ARMs, where the first number is the fixed years and the rate adjusts every six months after. Caps limit how much the rate can rise per adjustment and over the life of the loan.
Florida example
A Florida buyer planning to sell within seven years might take a 7/6 ARM at 6.0% instead of a 6.75% fixed loan, saving on payments during the fixed period. The risk is payment uncertainty if they stay past year seven.
How the rate moves over time
An adjustable-rate mortgage, or ARM, starts with a fixed rate for a set period. A 5/1 ARM stays fixed for five years, then adjusts once a year after that. The early rate is usually lower than a fixed loan.
When it adjusts, your rate follows a market index plus a set margin. Caps limit how much it can rise at each change and over the life of the loan.
When an ARM makes sense
An ARM can save money if you plan to sell or refinance before the fixed period ends. Short-term owners often come out ahead. The risk is that your payment could rise later.
Not sure if an ARM fits your plans? Reach out and we will compare it against a fixed loan so you see both the savings and the risk.
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Verify the details for your own situation against these government and agency sources: CFPB adjustable-rate mortgage guide and CFPB Owning a Home guide.