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Adjustable Rate Mortgage

Adjustable Rate Mortgage (ARM) Loans

An adjustable rate mortgage (ARM) offers lower initial payments and flexible terms, perfect for homeowners planning to move or refinance within a few years.

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Explore your ARM options
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Adjustable Rate Mortgage Benefits

Start low and save with an adjustable rate mortgage.

An ARM offers lower initial payments with flexible terms, like 5/1, 7/1, and 10/1 options. ARMs provide an affordable path to homeownership with competitive starting rates and the potential for future savings.

Lower initial payments
Flexible loan terms
Potential for future savings if rates go down
Increased purchasing power
Ability to sell or refinance before rates adjust

Compare ARM Loan Options

ARM names describe two important parts of the loan: the initial fixed-rate period and how frequently the rate can adjust afterward. For example, a 5/1 ARM has an initial five-year fixed-rate period followed by annual adjustments, while a 5/6 ARM can adjust every six months after the first five years.

ARM Type Initial Fixed-Rate Period Adjustment Frequency After Initial Period
3/1 ARM 3 years Once per year
5/1 ARM 5 years Once per year
5/6 ARM 5 years Every 6 months
7/1 ARM 7 years Once per year
7/6 ARM 7 years Every 6 months
10/1 ARM 10 years Once per year

How An Adjustable-Rate Mortgage Works

An ARM starts with an initial period when the interest rate is fixed. After that period ends, the rate can adjust according to the terms of the mortgage.

When an ARM adjusts, the new rate is generally based on an index plus a margin, subject to the loan's rate caps. Those caps limit how much the interest rate can change at the first adjustment, at later adjustments and over the life of the loan.

The adjustment schedule depends on the ARM structure. A 7/1 ARM, for example, has an initial seven-year fixed-rate period followed by annual adjustments. A 7/6 ARM also has a seven-year initial period, but can adjust every six months afterward. A 10/1 ARM has a 10-year initial period before annual adjustments can begin.

You can read more about how adjustable-rate mortgages work, including indexes, margins and rate caps.

Estimate Your ARM Payment

An ARM's principal-and-interest payment can change after the initial fixed-rate period if the interest rate adjusts. The amount of any change depends on the loan's terms and the interest rate that applies at the time.

Use the ARM payment calculator to model payments under different rate assumptions and see how an adjustment could affect principal and interest over time.

Adjustable Rate
Mortgage Calculator

Model different rate scenarios on a 5/1, 7/1, or 10/1 ARM. See how your payment changes in the first 5 years after the fixed period ends.

Scenario:

Payment 5 Years After Fixed Period

$0

Payment by year Gradual rise · 7/1 ARM
Use the sliders for quick comparisons or tap the blue value pills to type exact numbers.

This is an educational tool, not a loan offer, Loan Estimate, or commitment to lend. Rate scenarios are illustrative paths over the first 5 years after the fixed period, not predictions. Actual rate changes on an adjustable-rate mortgage depend on the index your ARM tracks, the margin, the timing of adjustments, and market conditions. Cap structure (initial, periodic, lifetime) governs the maximum the rate can move at each adjustment. Default starting rates assume typical premiums for longer fixed periods (~0.25% per added length), but actual offered rates depend on credit, market conditions, and lender. The decline scenario assumes a 2% floor as a realistic market minimum. Payment figures shown assume no prepayment, no escrow shortage, and no missed payments. Most ARM borrowers refinance, sell, or pay off before the full 30-year term. This calculator models the window where rate exposure is most relevant.

How this calculator works

Pick an ARM type (5/1, 7/1, or 10/1), then a market scenario for what happens after the fixed period ends. The headline shows your monthly payment 5 years after the rate starts adjusting, which is the window where most ARM borrowers are still in the loan and most rate exposure plays out.

Why 5 years after fixed period? Most ARM borrowers refinance, sell, or pay off the loan within 5-10 years of origination. The first 5 years of adjustments is where decisions actually get made and where the cap structure matters most. After that, lifetime caps usually constrain the rate to a known ceiling and the rest is deterministic.

ARM type and starting rate: Longer fixed periods carry slightly higher starting rates because the lender is taking on more rate risk for longer. The default starting rate changes when you select a different ARM type (5/1: 5.50%, 7/1: 5.75%, 10/1: 6.00%) to reflect typical pricing. You can override it with the slider.

Cap structure: The initial cap limits how much the rate can change at the first adjustment after the fixed period. The periodic cap limits each subsequent annual adjustment. The lifetime cap is the maximum total change from the start rate over the loan's life. Most conforming ARMs are structured 2/1/5, meaning 2% initial, 1% periodic, 5% lifetime.

Scenario definitions: Flat assumes rates never change. Gradual rise adjusts up by the initial cap at first adjustment, then by the periodic cap each year. Sudden spike jumps the initial cap immediately, takes one more periodic cap step, then holds. Decline reduces the rate by half the periodic cap each year, down to a 2% floor.

Worked example: A $450,000 7/1 ARM at 5.75% with 2/1/5 caps, gradual rise scenario: starting payment is $2,626. After the 7-year fixed period, the rate jumps to 7.75% (initial cap), then rises 1% per year (periodic cap) for the next 5 years to 10.75%. Payment at year 12 lands near $3,765, roughly 43% above your starting payment.

ARM vs. Fixed-Rate Mortgage

The main difference between an ARM and a fixed-rate mortgage is what happens to the interest rate after closing. A fixed-rate mortgage keeps the same interest rate for the full loan term. An ARM has an initial fixed-rate period followed by a period when the rate can adjust.

Feature Adjustable-Rate Mortgage Fixed-Rate Mortgage
Interest rate Fixed initially, then can adjust Fixed for the loan term
Initial fixed-rate period Varies by ARM structure Full loan term
Future rate changes Based on the loan's index, margin and caps None
Principal-and-interest payment Can change after the initial period Does not change because of interest-rate movements

The ARM vs. fixed-rate mortgage comparison takes a closer look at how the two structures differ over time.

What To Consider Before Choosing An ARM

ARM terms can vary, so the length of the initial fixed-rate period is only one factor to compare. The adjustment schedule, index, margin and rate caps all affect how the mortgage can behave after that period ends.

It is also useful to consider how long you expect to keep the mortgage. A 3/1 ARM reaches its first possible adjustment after three years, while a 10/1 ARM keeps its initial rate for 10 years. Plans to sell or refinance can change, so an ARM should also be evaluated based on what could happen if you keep the loan beyond its initial period.

Rate caps limit how much an ARM's interest rate can change, but they do not prevent the rate or principal-and-interest payment from increasing. The ARM risk calculator can illustrate how different rate changes could affect a payment.

Learn More About Adjustable-Rate Mortgages

Understand ARM Types

Compare Mortgage Options

ARM Calculators

Adjustable-Rate Mortgage FAQs

What Does ARM Stand For?

ARM stands for adjustable-rate mortgage. An ARM has an interest rate that is fixed for an initial period and can change at scheduled intervals afterward according to the terms of the loan.

What Do The Numbers In An ARM Name Mean?

The first number generally refers to the length of the initial fixed-rate period. The second describes how frequently the rate can adjust afterward. For example, a 5/1 ARM has an initial five-year period followed by annual adjustments, while a 5/6 ARM can adjust every six months after the first five years.

How Often Can An ARM Rate Change?

It depends on the ARM structure. A 3/1, 5/1, 7/1 or 10/1 ARM can adjust once per year after its initial period. A 5/6 or 7/6 ARM can adjust every six months after its initial period.

Can An ARM Payment Go Up?

Yes. If the interest rate increases after the initial fixed-rate period, the principal-and-interest payment can also increase. Rate caps limit how much the interest rate can change under the terms of the loan.

Is There A Limit To How Much An ARM Rate Can Increase?

ARMs generally include rate caps that limit adjustments. These can include limits on the first adjustment, later adjustments and the total increase allowed over the life of the loan. The specific caps depend on the mortgage.

What Is The Difference Between A 7/1 And 10/1 ARM?

Both can adjust annually after their initial fixed-rate periods. A 7/1 ARM reaches its first possible adjustment after seven years, while a 10/1 ARM does not reach its first possible adjustment until after 10 years.

Can You Refinance An ARM Into A Fixed-Rate Mortgage?

Yes. You can refinance an ARM into a fixed-rate mortgage if you qualify for the new loan. Refinancing replaces the existing mortgage and can involve closing costs, so the new rate, loan terms and costs all affect the comparison.

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