purchase
Adjustable-Rate Mortgages (ARM)
A lower fixed rate for an initial period, then a rate that can adjust over time — often a fit for buyers who plan to move or refinance sooner.
Eligibility
- Fixed introductory rate for an initial period, then periodic adjustments
- Built-in caps limit how much the rate can change
- Often a fit for shorter time horizons in the home
Key benefits
- Lower initial rate than a comparable fixed-rate loan
- Can put more home within reach during the fixed period
- Rate caps limit how much your rate can move
- Typically amortized over 30 years
What is an adjustable-rate mortgage?
An adjustable-rate mortgage, or ARM, is a loan whose interest rate can change over time. Instead of one rate for the life of the loan, an ARM carries a fixed rate for an initial period and then adjusts periodically based on market conditions. Because the starting rate is typically lower than a comparable fixed-rate loan, an ARM can make a more expensive home more affordable during those early years.
Who it's for
An ARM tends to fit buyers who don't expect to keep the same loan for the long haul — for example, if you plan to move or refinance within a few years, or you want a lower payment during the period you're most likely to be in the home. If you value a payment that never changes, a fixed-rate loan may suit you better, and we'll help you compare the two.
How it works
Every ARM is built from two pieces: an index (a market interest-rate benchmark the loan follows) and a margin (a set amount added on top of the index). When the loan adjusts, the margin is added to the current index to arrive at the new rate, which then stays fixed until the next adjustment.
The key protection is the set of caps that limit how much the rate can move. There's generally a limit on the first adjustment, a limit on each adjustment afterward, and a lifetime limit on how high the rate can ever go. ARMs are usually amortized over 30 years, with the initial fixed period ranging from as short as a few months to several years.
Before you choose an ARM, we'll walk you through your specific index, margin, and caps in plain language — so you understand both the lower starting payment and the most your rate could ever become.
Frequently asked
- How does an ARM rate adjust?
- An ARM has a fixed rate for an initial period, then adjusts based on a market index plus a set margin. Caps limit how much the rate can change at each adjustment and over the life of the loan, so there's a ceiling on how high it can go.
- When does an ARM make sense?
- An ARM can be a good fit if you expect to sell or refinance before the fixed period ends, since you get a lower initial rate during the years you're most likely to be in the home. We'll help you weigh that against a fixed-rate loan for your plans.
- What are rate caps?
- Caps are limits on how much your interest rate can move. There's typically a limit on the first adjustment, on each adjustment after that, and on how high the rate can go over the life of the loan. We'll show you exactly what the caps are before you commit.