Get a competitive introductory rate with an ARM
An adjustable rate mortgage (ARM) is a home loan with an interest rate that is fixed for an initial period of 3, 5, 7, or 10 years, then adjusts periodically based on a market index plus a set margin, with caps that limit how much the rate can change. Because lenders take on less long-term rate risk, the introductory rate on an ARM is typically lower than the rate on a comparable 30 year fixed mortgage.
An Adjustable Rate Mortgage typically offers a lower introductory interest rate and mortgage payment than a comparable fixed-rate loan, fixed for three, five, seven or ten years before it begins to adjust. The financially savvy borrower can plan their finances around this initial fixed period and the potential for future rate changes.
An Adjustable Rate Mortgage can help lower your monthly payment during the initial fixed period. This is a loan type worth considering for home owners who plan to move or sell their home while the rate is still locked for 3, 5, 7, or 10 years, depending on their mortgage program. Choosing an ARM for your home loan has the potential to save money compared to a traditional fixed-rate mortgage, depending on how rates move after the fixed period ends.
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How an ARM works: the 5/1 example
ARM programs are named for their structure: in a 5/1 ARM, the first number is how many years the rate stays fixed (5) and the second is how often it can adjust after that (every 1 year). A 7/1 ARM is fixed for 7 years, a 10/1 ARM for 10, and so on.
After the fixed period, your new rate is calculated as a published index (most ARMs today use SOFR) plus a fixed margin set in your loan documents. Adjustment caps limit how far the rate can move. A common cap structure is 2/2/5:
- 2% maximum increase at the first adjustment
- 2% maximum increase at each adjustment after that
- 5% maximum total increase over the life of the loan
For example, on a 5/1 ARM that starts at 6.0% with 2/2/5 caps, the rate cannot exceed 8.0% in year 6 and can never exceed 11.0% — no matter what the market does. Knowing your worst-case payment before you close is exactly the planning conversation our loan officers walk you through.
| Adjustable Rate Mortgage | 30 Year Fixed | |
|---|---|---|
| Introductory rate | Typically lower | Higher, but locked for life |
| Rate after intro period | Adjusts with the market (within caps) | Never changes |
| Best fit | Moving, selling, or refinancing within 3–10 years | Staying long term, prefer certainty |
| Risk | Payment can rise after the fixed period | Paying more interest if rates fall |
Learn more about the Adjustable Rate Mortgage (ARM)
When shopping for an Adjustable Rate Mortgage be sure to review the loan terms including adjustment caps with your loan officer. This will help to determine when the first potential adjustment could take place and what the maximum rate change could be. With this information you can properly plan for a potential payment increase at this point or to refinance prior to this date.
The Consumer Finance Protection Bureau (CFPB) has released a great informational brochure to answer all of your questions. Learn about Adjustable Rate Mortgages and ask us if you have any questions!
Want to Refinance to an Adjustable Rate Mortgage?
An Adjustable Rate Mortgage is worth considering if you want a lower initial rate than a fixed-rate loan typically offers. This loan type tends to be a good fit for families that plan on selling or refinancing within the initial fixed rate period, or for savvy borrowers who understand how ARM loans work and are comfortable with the potential for rate adjustments later.
RELATED: You can also choose a cash out refinance to pay off debt or do home improvements.
Reviewed by Anthony Bird, Owner / CEO of Riverbank Finance LLC, NMLS #137341 · Updated July 2026
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