Adjustable-rate mortgages

What is an adjustable-rate mortgage (ARM) loan?

An adjustable-rate mortgage (ARM) is a loan in which the interest rate may change periodically, usually based upon a pre-determined index. The ARM loan may include an initial fixed-rate period that is typically 3 to 10 years. The interest rate then may change (adjust) each year thereafter once the initial fixed period ends.  For example, with a 5/1 ARM loan for a 30-year term, your interest rate would be fixed for the initial 5 years and could fluctuate up or down each subsequent year for the next 25 years.

Should I get a fixed-rate loan or an ARM loan?

ARM loans typically feature lower rates and monthly payments than comparable fixed-rate loans during the initial rate period, but rates could increase or decrease once the initial rate expires. While many home buyers prefer the security of a fixed-rate mortgage, an ARM can be a good choice, too - especially if you know you'll be moving within the next few years.

3- and 5-year ARM loans

3/1 ARMs and 5/1 ARMs generally provide the lowest interest rates and monthly payments during the initial rate period. These loans are ideal for borrowers who don't want a long-term mortgage.

10-year ARM loans

10-year ARMs are increasingly popular as they combine significant savings for the initial rate period with longer protection from market-based interest-rate fluctuations.

ARM loan benefits and considerations

The best short-term ARM rates

Conventional adjustable-rate mortgage (ARM) loans typically feature lower interest rates and Annual Percentage Rates (APRs) during the initial rate period than comparable fixed-rate mortgages.

Low monthly payments

An adjustable-rate mortgage (ARM) loan lets you keep your monthly payments low during the initial term of your home loan, giving you the option to pay down your mortgage faster.