A home loan that can save on interest during the first few years.
Low Introductory Interest Rate
Lower Monthly Payments
More Payments Against Principal
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8-Minute Read
What Is An Adjustable-Rate Mortgage?
5-Minute Read
7/6 ARM: Definition And How It Works
7-Minute Read
Compare Adjustable-Rate Mortgage (ARM) Vs. Fixed-Rate Mortgage
8-Minute Read
What Is An Adjustable-Rate Mortgage?
5-Minute Read
7/6 ARM: Definition And How It Works
7-Minute Read
Compare Adjustable-Rate Mortgage (ARM) Vs. Fixed-Rate Mortgage
Frequently Asked Questions
An ARM has a 30-year term with two periods: a fixed period and an adjustable period.
Fixed period: During the initial, fixed-rate period, typically the first 5, 7 or 10 years of the loan, your interest rate won’t change.
Adjustment period: This period comes after the fixed period. Your interest rate can go up or down.
For example: If you take out an ARM with a 5-year fixed period, the interest rate would be fixed for the first 5 years of the loan. After that, your rate would adjust up or down for the remaining 25 years of the loan.
Pros
- Lower rate for the first few years. You’ll typically have a lower rate for the first few years of the loan.
- Lower monthly payment for the first few years. Because your interest rate is typically lower, your payment could be lower too.
Cons
- Rates can go up. If your rate goes up, your monthly mortgage payments will go up, too.
- Less predictable payments. The possibility of future rate adjustments can be a concern for some home buyers.
An ARM can be a good option if you want to:
- Pay down your principal faster. Since you’ll typically have lower monthly payments the first few years, you could put the extra money you save toward your principal loan balance.
- Buy a starter home. The risks of an ARM are relatively minimal if you sell your home before the interest rate starts adjusting.
- Save and invest. You could put your monthly payment savings toward other financial goals.
5/1 And 5/6 ARMs: These loans offer a fixed interest rate for the first 5 years of the loan term. The second number represents the frequency of future rate adjustments after the first 5 years. With a 5/1 ARM, the rate adjusts once a year for the remaining loan term. With a 5/6 ARM, the rate adjusts every 6 months.
7/1 And 7/6 ARMs: These loans offer a fixed rate for 7 years. With a 30-year loan term, the initial fixed-rate period would last 7 years. Once the introductory period expires, you would make payments based on changing interest rates for the remaining 23 years on the loan.
10/1 And 10/6 ARMs: These loans have fixed rates for the first 10 years of the loan. After year 10, the interest rate will periodically fluctuate based on market conditions. A 30-year loan term means 20 years of changing payments.