Adjustable-Rate Mortgages (ARM)

Explore what an adjustable rate can save you

Learn the Basics

What is an Adjustable-Rate Mortgage?

Want to lock in a low monthly payment for the early years and have some breathing room in the future?

First-time homebuyers often choose ARMs because they start with a lower introductory rate (think “teaser”) compared to fixed rates, making monthly payments cheaper. This offers an easier entry point to homeownership.

How Does ARMs Work?

Fixed Intro Period: The initial period (usually 5, 7, or 10 years) has a low, locked-in rate.
Adjustable Rate: After the intro period, the rate adjusts based on an index (short-term borrowing cost) + your lender’s margin (a set percentage). This becomes your new interest rate.
Hybrid Loan: An ARM is essentially a fixed-rate loan upfront that converts to an adjustable rate later.

What Do the Terms Mean?

Most people tend to get tricked up by the terminology for ARMs rates. When you’re looking at the rate, it starts with the period of the initial fixed rate period and then how often it will adjust.

For example, look for numbers like “7/3” – the first number indicates the fixed rate period (7 years), the second how often it adjusts (every 3 months).

Types of Mortgages

ARMs Vs Fixed-Rate Mortgages

The biggest difference between an ARMs and fixed-rate mortgage is RISK. ARMs only lock in a rate for the first 5, 7, or 10 years, therefore, after that period of time, your rate will adjust with market conditions.

ARMs

Pros: Lower starting rates mean lower monthly payments initially, potentially making homeownership more affordable upfront.
Cons: Rates adjust after a fixed period (often 5-10 years) based on market conditions, which can be unpredictable. This could lead to higher payments in the future.

Fixed rate Mortgages

Pros: Consistent and predictable monthly payments throughout the loan term. Peace of mind knowing your rate won’t change.
Cons: Typically higher starting rates compared to ARMs, which may require slightly higher initial monthly payments.

Get Your Savings

ARM V.S. Fixed-Rate Mortgage

Rates are assumed a credit score of 650 or above

Adjustable-Rate

$ 0

Home Cost

0 %

Down Payment

0 %

interest rate for 7 years

$ 0

Expected Monthly Mortgage

$ 0

Total Payments over first 7 years

Fixed-Rate

$ 0