A 5/6 ARM is an adjustable-rate mortgage with an interest rate that stays fixed for the first five years. After that initial period, the rate can adjust every six months.
The five-year fixed period works much like the initial period on a 5/1 ARM. The key difference comes later: a 5/1 ARM can adjust annually, while a 5/6 ARM can adjust twice per year.
5/6 ARM Basics
| Feature |
How a 5/6 ARM Works |
| Initial fixed-rate period |
5 years |
| First possible adjustment |
After the initial 5-year period |
| Adjustment frequency |
Every 6 months after the initial period |
| Adjusted rate |
Generally based on an index plus a margin, subject to the loan terms |
| Rate caps |
Limit how much the rate can change at the first adjustment, later adjustments and over the life of the loan |
| Principal-and-interest payment |
Can change after the initial period if the interest rate changes |
How a 5/6 ARM Works
The numbers in a 5/6 ARM describe its interest-rate schedule. The “5” means the initial interest rate stays fixed for five years. The “6” means the rate can adjust every six months after that period ends.
During the first five years, the mortgage interest rate does not change. On a standard fully amortizing mortgage, the scheduled principal-and-interest payment generally remains stable during that period.
Your total monthly housing payment can still change if expenses such as property taxes, homeowners insurance, mortgage insurance or escrow requirements change.
After the initial period, the mortgage enters its adjustable phase. The interest rate can then change every six months based on the loan's index, margin, rate caps and any applicable floor.
What Happens After 5 Years on a 5/6 ARM?
Once the initial five-year period ends, the first adjustment is generally based on a market index plus the margin specified in the loan agreement.
The index can change with market conditions, while the margin is set in the loan agreement and generally does not change after closing.
If the adjusted interest rate rises, your principal-and-interest payment can increase. If the index falls, the rate may decrease, depending on the mortgage's caps, floor and other terms.
After that first adjustment, another adjustment can occur six months later. That shorter interval is an important distinction when comparing a 5/6 ARM with an ARM that adjusts annually.
How Rate Caps Work on a 5/6 ARM
Rate caps limit how much an ARM's interest rate can change. They are especially important on a 5/6 ARM because adjustments can occur every six months after the initial period.
The CFPB identifies three common types of ARM rate caps:
- Initial adjustment cap: Limits how much the rate can change when the initial five-year period ends.
- Subsequent adjustment cap: Limits how much the rate can change at later six-month adjustments.
- Lifetime adjustment cap: Limits the total rate change allowed over the life of the mortgage.
Some ARMs also have an interest-rate floor that limits how far the rate can decrease. The specific caps and any floor depend on the mortgage, so review the terms shown in your loan disclosures.
How a 5/6 ARM Compares With Other ARMs
5/6 ARM vs. 5/1 ARM
A 5/1 ARM and a 5/6 ARM both have an initial five-year fixed-rate period. The difference is the adjustment frequency afterward.
| Feature |
5/6 ARM |
5/1 ARM |
| Initial fixed-rate period |
5 years |
5 years |
| Adjustment frequency afterward |
Every 6 months |
Once per year |
| First possible adjustment |
After the initial 5-year period |
After the initial 5-year period |
The more frequent adjustment schedule means a 5/6 ARM has more opportunities for its rate to change once the initial period ends. Actual risk also depends on the index, margin and caps, so adjustment frequency alone does not determine which loan will cost more.
The difference becomes clearer when comparing 5/1 and 5/6 ARMs using the actual terms available with each loan.
5/6 ARM vs. 7/6 ARM
A 7/6 ARM has the same six-month adjustment frequency after its initial period, but it keeps its initial rate fixed for seven years instead of five.
That gives the 7/6 ARM two additional years before its first possible adjustment. Pricing, fees and other loan terms can also differ, so the initial-period length is only one factor when comparing 5/6 and 7/6 ARMs.
5/6 ARM vs. Fixed-Rate Mortgage
A 5/6 ARM keeps its interest rate fixed for five years and then allows adjustments every six months. A fixed-rate mortgage keeps the same interest rate for the full loan term.
| Feature |
5/6 ARM |
Fixed-Rate Mortgage |
| Interest rate |
Fixed for 5 years, then adjustable |
Fixed for the loan term |
| First possible rate change |
After the initial 5-year period |
No scheduled rate adjustment |
| Later adjustment frequency |
Every 6 months |
Not applicable |
| Principal-and-interest payment |
Can change after the initial period |
Does not change because of market interest rates |
A 5/6 ARM does not automatically have a lower initial rate or payment than a fixed-rate mortgage. Compare the actual interest rate, APR, fees and adjustment terms available with each loan.
Advantages and Disadvantages of a 5/6 ARM
Potential Advantages
- Five-year initial period: The interest rate does not adjust during the first five years.
- Rates can decrease: After the initial period, the adjusted rate may fall if the underlying index declines and the loan terms allow it.
- Potential pricing difference: Depending on market conditions and lender pricing, a 5/6 ARM may have different initial terms than other ARM structures or fixed-rate mortgages.
Potential Disadvantages
- Six-month adjustments: Once the initial period ends, the rate can change twice per year.
- Future payment uncertainty: Your principal-and-interest payment can increase if the adjusted rate rises.
- Plans can change: Selling or refinancing before the first adjustment is not guaranteed.
Who Might Consider a 5/6 ARM?
A 5/6 ARM may be worth comparing if a five-year initial fixed-rate period fits your expected timeline and you are comfortable with the possibility of six-month rate adjustments afterward.
You may expect to sell, refinance or pay off the mortgage before the adjustable period begins. Those plans can factor into your comparison, but consider whether the mortgage would remain manageable if you still have it after five years.
The potential payment after an ARM begins adjusting can be useful to model before choosing a loan, particularly when adjustments can occur twice per year.
What to Compare Before Choosing a 5/6 ARM
Two 5/6 ARMs can follow the same five-year fixed period and six-month adjustment schedule while having different rates, margins, caps and costs.
Compare:
- The initial interest rate and APR
- The first adjustment date
- The six-month adjustment schedule
- The index
- The margin
- The initial adjustment cap
- The subsequent adjustment cap
- The lifetime adjustment cap
- Any applicable interest-rate floor
- Points and lender fees
- The maximum possible principal-and-interest payment
An adjustable-rate Loan Estimate includes information about the index, margin and how the interest rate and payment can change. Comparing those terms across offers can give you a clearer picture than looking at the initial rate alone.
Bottom Line
A 5/6 ARM has an interest rate that stays fixed for five years and can adjust every six months afterward. That adjustment frequency is the main feature that distinguishes it from a 5/1 ARM.
Compare the actual interest rate, APR, fees, index, margin, caps and potential future payment before choosing a 5/6 ARM over another mortgage structure.
Frequently Asked Questions
What Does 5/6 Mean in an ARM?
The “5” means the initial interest rate stays fixed for five years. The “6” means the rate can adjust every six months after the initial period ends.
What Happens After 5 Years on a 5/6 ARM?
The interest rate becomes eligible for adjustment. The adjusted rate is generally based on the loan's index plus margin, subject to rate caps and any applicable floor. It can then adjust again every six months according to the loan terms.
Is a 5/6 ARM the Same as a 5/1 ARM?
No. Both have an initial five-year fixed-rate period. A 5/6 ARM can adjust every six months afterward, while a 5/1 ARM can adjust once per year.
Can a 5/6 ARM Payment Increase?
Yes. If the interest rate rises after the initial five-year period, the principal-and-interest payment can also increase. Rate caps limit how much the rate can change under the mortgage terms.
Can a 5/6 ARM Rate Go Down?
It can. If the underlying index declines, the adjusted rate may decrease, depending on the mortgage's margin, caps, floor and other terms.
Is a 5/6 ARM a 30-Year Mortgage?
The 5/6 designation describes the interest-rate schedule, not the total repayment term. A 5/6 ARM can have a longer repayment term, such as 30 years, with the first five years fixed and later years subject to six-month adjustments.
Can You Refinance a 5/6 ARM Before It Adjusts?
Yes, if you qualify for a new mortgage. Refinancing replaces the existing loan and can involve closing costs, so future rates, loan terms and costs affect whether refinancing makes financial sense.
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