How adjustable-rate mortgages really move
The parts of an ARM
In brief
ARM names give two numbers: the years of the initial fixed period and how often it adjusts afterward. A 5/6 ARM is fixed for five years, then adjusts every six months; a 7/1 adjusts yearly after seven. At each adjustment the lender recalculates the payment from the new rate and remaining balance.
Last reviewed against the primary sources listed below.
The four numbers to find
- Initial fixed period.
- Adjustment frequency.
- Index and margin.
- Caps: first, periodic, lifetime.
ARM questions
What is the difference between a variable rate mortgage and an adjustable-rate mortgage?
In the US the terms are often used interchangeably; both describe a rate that can change over the loan's life based on an index.
Is a 7 year ARM a good idea?
It can suit someone who expects to sell or refinance before or soon after the fixed period ends and can afford the worst case if not.