An adjustable-rate mortgage (ARM) is a home loan with an interest rate that fluctuates over time, typically after an initial fixed-rate period. This means that while your interest rate and monthly payments are fixed for the first few years (usually 5, 7, or 10 years), they can change after that based on market conditions. The rate adjustments are tied to a financial index, and the amount it can change is limited by rate caps. ARMs are a popular option for buyers who intend to move or refinance during the fixed-rate period because they can offer lower initial interest rates than fixed-rate mortgages. However, after the fixed period ends, your payments may increase if market rates rise, which can create unpredictability. While ARMs can save money in the short term, they come with the risk of higher payments down the road. It’s important to carefully assess your financial situation and future plans before choosing an ARM.

Types of Adjustable-Rate Mortgages:

5-year ARM – Fixed rate for 5 years, then adjusts periodically. Perfect for those who plan to move or refinance within 5 years.

7-year ARM – Fixed rate for 7 years, offering longer stability before rate adjustments. Ideal for buyers with medium term homeownership plans.

10-year ARM – Fixed rate for 10 years, offering the longest period of predictable payments. Suitable for those who want long-term stability before potential rate changes.

Today’s ARMs are more flexible, more predictable, and often make a lot more sense than you might think—especially if you don’t plan on staying in your home long-term.

Lower Interest Rates
ARMs typically offer lower introductory interest rates compared to fixed-rate mortgages, which can result in significant savings on your monthly payments during the fixed-rate period.

Reduced Monthly Payments
With a lower initial rate, ARMs can provide lower monthly payments, leaving you with more cash for other expenses or savings.

Potential for Rate Decreases
If market interest rates drop after your initial fixed-rate period, your payment could decrease, saving you even more without doing anything.

Faster Principal Repayment
Because more of your payment goes toward the principal in an ARM, you can pay down your mortgage faster than with some other loan options.

Flexible Payment Options
The adjustable nature of ARMs allows for flexibility, making homeownership more affordable, especially for those who plan to move or refinance before the adjustable period begins.

No Pre-Payment Penalties
ARMs offer the advantage of no pre-payment penalties, so you can easily refinance or pay off the loan early without facing extra fees.

Protection Against Rate Spikes
Rate caps limit how much your interest rate can increase, providing protection from drastic market-driven rate hikes.

Refinance Flexibility
If needed, you can refinance your ARM before the introductory rate expires, securing a fixed rate and stable payments for the remainder of the loan term.