Adjustable-rate Mortgages

An adjustable-rate mortgage (ARM) has lower monthly principal and interest payments during the first few years, and then adjusts and may increase depending on the current market at the adjustment period/date, after a specified period of time. Therefore, this is generally used only if you are considering moving or selling before the first adjustment period ends. The most common ARM is typically the 5/1. However, there are a variety of options, such as 5/5, 7/1 & 10/1.



The first number in the fraction is how long the initial interest rate would remain the same, so for the 1st two examples that would be 5 years. The second number in the equation is the rate cap or how much the rate can change once the initial time has lapsed. There is more involved in this and if you are considering an ARM, your lender is required to provide you additional information so that you understand how this all works.