An adjustable-rate mortgage (ARM) is exactly what it sounds like: A mortgage with a rate that adjusts, or changes over time.
ARMs usually start with an introductory fixed-rate period, followed by adjustments on a regular basis based on both a market index and a lender-added margin. That structure has a major advantage in that it often has lower rates than typical fixed-rate loans during the introductory period.
In 2026, ARMs matter because many buyers want lower upfront payments and the flexibility to sell, move, or refinance before adjustments begin.
Compared with a fixed-rate mortgage, which does not change, an ARM can trade long-term certainty for early savings. That can be useful when your expected timeline is shorter than your long-term housing plans.
What Is An Adjustable-Rate Mortgage
An ARM is a mortgage with a rate that can change over time. Most modern ARMs are what’s called hybrids, which means they begin with a fixed rate for several years and then adjust at set intervals based on a benchmark index plus a lender-set margin.
The appeal is straightforward. Lower initial payments come with the understanding that payments may rise or fall later as the market moves.
By contrast, a fixed-rate loan remains constant for the entire term and provides more long-term payment stability.
How Adjustable-Rate Mortgages Work
ARM Introductory Periods Explained
So a typical modern ARM kicks off with a fixed-rate introductory period and then adjusts. The initial fixed period is the span, often 3, 5, 7, or 10 years, during which your interest rate and principal-and-interest payment do not change.
Longer fixed periods, such as 7 or 10 years, typically carry slightly higher starting rates than shorter ones because they provide more upfront certainty.
How ARMS Adjust
After the introductory period ends, your ARM will adjust periodically. You’ll commonly see terms like 5/1 or 7/6 ARM.
As a general rule of thumb, the first number refers to the years of the introductory period, and the second number refers to how often the ARM adjusts.
The adjustment period gets a little weird: If you see an ARM ending it /1, that generally means it adjusts every year. But if you see one ending in /6, that usually means the rate adjusts every six months, not every six years.
ARMs adjust based on both an index and a margin.
The index is a published benchmark rate that reflects broader market conditions. Many modern ARMs use SOFR.
The margin is a fixed percentage set by the lender. At each adjustment, your new rate equals the current index plus your margin. For example, if the index is 3.25 percent and your margin is 2.75 percent, your adjusted rate would be 6.00 percent.
Rate Caps and Limits
Most ARMs have limits on rate changes, or rate caps limit how much your ARM can increase at each adjustment and over the life of the loan.
There are typically three types of caps: A cap on how much your rate can change after your introductory period ends, a cap on how much they can change periodically after, and a lifetime cap that puts an upper limit on how high your rate can be.
A common structure is 2/2/5. That means:
- The first adjustment can increase up to 2 percentage points
- Each subsequent adjustment can increase up to 2 percentage points
- The rate can never rise more than 5 percentage points above the original rate
Caps do not eliminate risk, but they help borrowers estimate a worst-case payment scenario. If your ARM starts at 6%, for instance, a 2/2/5 structure would mean your initial rate change will max out up to 8%, your next increase can be up to 10%, and your lifetime increase can never be more than 11%.
Common Types Of ARMs In 2026
Common hybrid ARMs include 3/1, 5/1, 7/6, and 10/6 structures.
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ARM Type
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Initial Fixed Years
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Adjustment Frequency After Fixed
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Typical Use Case
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3/1 ARM
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3
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Annually
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Short-term owners planning a move
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5/1 ARM
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5
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Annually
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Buyers prioritizing lower early payments
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7/6 ARM
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7
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Every 6 months
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Buyers seeking longer initial stability
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10/6 ARM
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10
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Every 6 months
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Borrowers wanting a decade of fixed payments
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Advantages Of Adjustable-Rate Mortgages
The biggest advantage of an ARM is lower initial interest rates and payments during the introductory period compared with fixed-rate loans.
That means improved early affordability and increased cash flow.
If you want to be strategic, you can leverage that affordability by planning to move or refinance before your first adjustment.
You could also benefit if rates decline after your introductory period ends.
Risks And Considerations With ARMs
In the long run, ARMs mean payment uncertainty. Payments can rise after the initial fixed period, and even with rate caps you could see have payment shock if your rates increase.
Banking on your plans in five years is also a risky move, since refinancing isn’t a guarantee and moving plans can change.
The Bottom Line
An adjustable-rate mortgage can provide lower initial payments and improved early affordability compared with a fixed-rate mortgage. In exchange, borrowers accept the possibility of future rate changes.
If your expected timeline aligns with the fixed period and you understand the risks, an ARM can be a practical financial tool. If long-term stability is your priority, a fixed-rate loan may offer greater peace of mind.
Frequently Asked Questions
What Are Current ARM Rates In 2026
ARM rates vary by lender, credit profile, loan size, and market conditions. Because rates change frequently, it is best to compare real-time quotes based on your financial profile.
How Do ARM Adjustments Affect My Payments
After the fixed period, your rate adjusts based on the loan’s index plus margin, subject to rate caps. Your monthly payment changes accordingly.
Fixed-Rate Vs. Adjustable-Rate Mortgage: Which Is Better
A fixed-rate mortgage offers long-term payment stability. An ARM typically starts with lower payments but can change later. The right choice depends on your timeline and comfort with risk.
How Can I Manage Risks With An ARM
Review your rate caps, estimate potential future payments, and align the loan structure with your expected time in the home.
