How Adjustable Rate Mortgage Loans Work (ARM)

If you are only planning on being in this home for a few years or think that mortgage interest rates will decline, then you may want to consider an ARM.

An adjustable-rate mortgage, or ARM, has an introductory interest rate that lasts a set period of time (5, 7, or 10 years) and adjusts annually thereafter for the remaining time period.


  • 5/1 ARM: Your interest rate is set for 5 years then adjusts annually for 25 years.
  • 7/1 ARM: Your interest rate is set for 7 years then adjusts annually for 23 years.
  • 10/1 ARM: Your interest rate is set for 10 years then adjusts annually for 20 years.

After the set time period your interest rate will change as will your monthly payment. Your monthly payment will adjust annually based on a predetermined index and margin. Rate changes are typically capped for each adjustment period as well as for the life of the loan.

Fixed vs. Adjustable Rate

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