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Variable Rate Mortgage
An adjustable rate mortgage (ARM) is a home loan with a fixed interest rate for an initial period, typically 5 to 10 years, that then adjusts at set intervals. Because the starting rate is often lower than on a fixed rate loan, an ARM can save you money if you plan to move, refinance or pay off your mortgage before the rate adjusts.
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5 to 10
Years at a fixed starting rate
Rate caps
Limit how much your rate can change
620
Credit score many lenders look for
ARM Basics
An adjustable rate mortgage (ARM) is a home loan with an interest rate that stays fixed for an initial period, typically 5 to 10 years, and then adjusts at set intervals based on market conditions. Unlike a fixed rate mortgage, an ARM follows a financial index, such as the Secured Overnight Financing Rate (SOFR) or U.S. Treasury rates.
An ARM suits buyers who want lower payments at the start, especially if they plan to sell or refinance before the rate begins to adjust. Borrowers who expect their income to grow may also benefit from lower payments in the early years. Investors and buyers in high cost areas often use ARMs to take advantage of a lower starting rate.
An ARM has two phases. During the initial fixed period, your rate and payment stay the same. After that, the rate adjusts at set intervals, often once a year, based on a financial index plus a margin set by the lender. Rate caps limit how much the rate can rise or fall at each adjustment and over the life of the loan.
ARMs are named for the length of the fixed period and how often the rate adjusts. A 5/1 ARM is fixed for 5 years and then adjusts annually, and a 7/1 ARM is fixed for 7 years before annual adjustments. A 10/1 ARM offers a longer fixed period, and some lenders offer hybrid ARMs with other adjustment schedules.
ARMs start with a lower interest rate than many fixed rate loans, which means lower monthly payments during the initial period. That can free up room in your budget for a larger home or other financial goals. If rates fall, you may benefit without refinancing, and rate caps limit how much your payment can rise.
An ARM may be the right choice if you plan to sell or refinance before the fixed period ends and you are comfortable with possible rate changes. It can also make sense if you expect your income to grow. If long term payment stability matters most, a fixed rate mortgage may be the better fit, and an ARBOR loan originator can compare both.
Adjustment frequency, margins and rate caps are defined in your loan terms and vary by lender and loan program.
Why ARBOR
We help homebuyers find ARM options that match their financial plans. Whether you want a lower starting rate, flexible terms or a refinance, our mortgage experts offer personalized guidance and competitive rates.
From application to closing, we keep the process clear and transparent so you understand your loan terms and how your rate can adjust. We work with top lenders to find cost effective ARM options for your needs.
Ready to explore an adjustable rate mortgage? Contact ARBOR today to compare your options.
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FAQ
Answers to common questions about how ARMs work, what 5/1 and 7/1 mean, rate caps, credit scores and when an ARM makes sense.
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Talk with a licensed ARBOR loan originator about whether an ARM fits your plans.
866-521-6488[email protected]Browse all mortgage FAQsAn adjustable rate mortgage, or ARM, is a home loan that starts with a fixed interest rate for an initial period and then adjusts periodically based on market rates. This structure can offer lower initial payments than many fixed rate mortgages.
An ARM starts with a fixed period, such as 5, 7 or 10 years. When that period ends, the rate adjusts at scheduled intervals based on a financial index plus a margin, within the caps and terms set out in your loan agreement.
A 5/1 ARM has a fixed rate for the first 5 years and then adjusts once a year after that. A 7/1 ARM works the same way, with a fixed rate for the first 7 years followed by annual adjustments based on market conditions.
At the start, often yes. ARMs typically begin with a lower interest rate than fixed rate loans, which makes them attractive if you plan to sell or refinance before the adjustment period begins. After that, your rate could rise or fall.
After the initial fixed period ends, ARM rates typically adjust once a year. How often the rate changes, and by how much, is set out in your loan terms and tied to a specific financial index.
Yes. Most ARMs include rate caps that limit how much the interest rate can rise at each adjustment and over the life of the loan. These caps help protect you from large payment increases.
An ARM rate follows a financial index, such as the Secured Overnight Financing Rate (SOFR) or U.S. Treasury rates. At each adjustment, your new rate is based on that index plus a margin set by the lender, limited by your rate caps.
An ARM may suit you if you plan to move, sell or refinance before the initial fixed period ends, or if you want lower monthly payments in the early years. Buyers who expect their income to grow may also benefit.
Yes. Many borrowers refinance an ARM into a fixed rate loan before the adjustment period begins, depending on market conditions and their financial goals. An ARBOR loan originator can help you decide when it makes sense.
Requirements vary by lender and loan program, but many lenders look for a credit score of around 620 or higher. Stronger credit profiles may qualify for better rates and loan terms.
Closing an ARM works much like closing other home loans. The timeline depends on your documentation, underwriting and the property appraisal, and getting preapproved early can help keep things on track.
*Important notice: By refinancing your existing loan, your total finance charges may be higher over the life of the loan. The content provided within this website is presented for information purposes only. This is not a commitment to lend or extend credit. Information and/or dates are subject to change without notice. All loans are subject to credit approval. Other restrictions may apply. ARBOR Financial Group is not affiliated with an agency of the federal government, HUD or FHA. THIS IS NOT A GOVERNMENT DOCUMENT. HUD or FHA did not distribute or approve this material.
