Adjustable Rate Mortgage

Adjustable Rate Mortgages

These increasingly popular ARMS—also called 3/1, 5/1 or 7/1—can offer the best of both worlds: lower interest rates (like ARMs) and a fixed payment for a longer period of time than most adjustable rate loans. For example, a “5/1 loan” has a fixed monthly payment and interest for the first five years and then turns into a traditional adjustable-rate loan, based on then-current rates for the remaining 25 years. It’s a good choice for people who expect to move (or refinance) before or shortly after the adjustment occurs.

Adjustable Rate Mortgage FAQs

ARM & Interest Only ARM vs. Fixed Rate Mortgage

Use this calculator to compare a fixed rate mortgage to two types of ARMs—a Fully Amortizing ARM and an Interest-Only ARM. A fixed rate mortgage has the same payment for the entire term of the loan, while an adjustable rate mortgage (ARM) has a rate that can change after the first five years, which could increase or decrease your monthly mortgage payment.

Is an Adjustable Rate Mortgage Right for You?

Lower Monthly Payments

Payments made during the initial fixed rate period will be lower than a long-term fixed-rate mortgage.

Save Your Cash

You can use the monthly saving during the initial fixed rate period and add it to your retirement or other savings plans.

Rates Can Drop

If interest rates drop you can take advantage of lower interest rates at the end of your adjustment period.

You’re Flipping

An adjustable rate mortgage is a great option if you plan to fix the house up and sell it within a few years.

Capped Payment Increases

ARM loans have a cap on how fast the rate can increase, which means that even if payments go up, there’s a limit.