Adjustable Rate Mortgages
(ARMs)

What is an ARM?

An adjustable rate mortgage (ARM) starts with a fixed interest rate for a set number of years. After that initial period, the rate can change at scheduled adjustment dates based on the terms of your note, caps, and the underlying index plus a margin.

Common structures include 5/1, 7/1, and 10/1 ARMs. The first number is how many years the initial rate stays fixed; the second indicates how often the rate may adjust after that (for example, every one year for many products).

5/1, 7/1, and 10/1 ARMs

• 5/1 ARM: Fixed payment for the first five years, then annual adjustments according to your loan terms.
• 7/1 ARM: Seven years of initial rate stability before adjustments begin.
• 10/1 ARM: Ten years fixed first—often chosen by borrowers who want a longer period of certainty before any adjustment.

How Rate Adjustments Work

After the fixed period, the new rate is typically determined by adding a fixed margin to a published index (such as SOFR-based indices, depending on your loan program). Your loan documents specify rate caps that limit how much the rate can change at each adjustment and over the life of the loan.

When an ARM Makes Sense

• You expect to sell or refinance before the initial fixed period ends
• You want a lower initial payment to free up cash for other goals
• You are comfortable planning for possible payment changes after the fixed phase
• You may receive income increases that could offset future payment changes

Requirements

Fixed vs. ARM

If long-term rate certainty is your top priority, a fixed rate mortgage may be preferable. If you have a shorter time horizon or want a lower starting payment and accept future adjustments, an ARM may be worth comparing side by side with a fixed option.