Adjustable-Rate Mortgage
Discover if an adjustable-rate mortgage (ARM) is the right option for you.
Adjustable-Rate Mortgage
An ARM2 is a home loan with a market-based variable interest rate that shifts over time. With a lower starting rate3 than fixed-rate loans, it can be a good choice if you want lower initial monthly payments3.
ARM benefits:
- Lower initial monthly payments3
- No prepayment penalties
- Capped interest rates
- Various ARM terms available
An ARM might be right for you if you are:
- Planning to sell, upgrade or relocate within 5-7 years
- Prioritizing your budget for renovations, building up your savings or investment strategy
For more information on ARMs, click here.
ARM vs Fixed-Rate
| FEATURE | ADJUSTABLE-RATE MORTGAGE (ARM)1 | FIXED-RATE MORTGAGE |
| Interest Rate | Lower3 at first, then adjusts with the market, offering significant early savings on large loan balances | Locked in for the life of the loan |
| Monthly Payments | Lower initially and can adjust over time3 | Consistent and predictable payments |
| Rate Stability | Lower during initial period3 | Never changes |
| Best For | If you’re planning to sell or refinance within 7 years | If you’re planning to stay long-term |
| Budgeting | Requires flexibility for future increases3 | Easier to plan long-term finances |
| Total Interest Paid | Can be higher if rates rise | Potentially lower in a rising rate market |
| Home Price You May Qualify For1 | May qualify1 for slightly more due to lower initial monthly rates and payments3 | May qualify1 for slightly less due to higher initial monthly payments |
Disclosures
1Must qualify as a TruWest member with a minimum $5 membership deposit and continuing balance. Financing solutions not available in AK, HI, LA, SC, VT, and WI. Condominium financing not available in NY and with restrictions in certain areas in FL. All loans are subject to application, approval, credit and product/program terms and conditions. Programs, rates, restrictions, terms and conditions are subject to change without notice. Other restrictions may apply. This is not an offer for extension of credit or a commitment to lend. Not all applicants will qualify. This is an advertisement.
2ARM = Adjustable-rate mortgage
3Rates and payments may increase after the initial rate period.
Have more questions? Contact one of our experienced mortgage loan officers today.
ARM FAQs
What is an Adjustable-Rate Mortgage (ARM)?
An ARM is a type of mortgage where the interest rate changes periodically based on a benchmark index. It typically starts with a lower fixed interest rate for a set period, then adjusts at regular intervals.
How does an ARM differ from a fixed-rate mortgage?
A fixed-rate mortgage has the same interest rate for the entire loan term, while an ARM has a variable rate after an initial fixed period. ARMs often start with lower rates, however they can increase or decrease based on market conditions.
What do the numbers in ARM terms mean (e.g., 5/1 ARM)?
In a 5/1 ARM, the “5” means the interest rate is fixed for the first 5 years. The “1” means the rate adjusts every 1 year after that. Common ARM terms include 3/1, 5/1, 7/1, and 10/1.
What are the cons of an ARM?
- Monthly payments can increase significantly after the fixed period
- Interest rate uncertainty
- Budgeting challenges if rates rise
How often can the interest rate change?
After the initial fixed-rate period, the rate usually adjusts annually. The adjustment frequency depends on the ARM terms (e.g., yearly in a 5/1 ARM).
Are there limits on how much the rate or payment can increase?
Yes, ARMs have rate caps:
- Initial cap: Limits the first rate increase
- Periodic cap: Limits each adjustment
- Lifetime cap: Limits the total rate increase over the life of the loan
What index is used to determine rate changes?
ARMs are tied to a financial index (like CMT, SOFR or LIBOR). The lender adds a “margin” to this index to determine your interest rate after the fixed period.
Can I refinance an ARM into a fixed-rate mortgage later?
Yes. Many borrowers refinance to a fixed-rate loan before or during the adjustable period—especially if rates are expected to rise or if they plan to stay in the home long-term.
Is an ARM a good option for me?
An ARM might be right for you if:
- You plan to sell or refinance before the fixed-rate period ends
- You can handle potential rate increases
- You want to take advantage of lower initial rates
Submit a Contact Form
Have a question or concern? Let us know how we can assist you, and we’ll be in touch soon.
All fields marked with * are required and must be filled.
Disclosures
1Must qualify as a TruWest member with a minimum $5 membership deposit and continuing balance. Financing solutions not available in AK, HI, LA, SC, VT, and WI. Condominium financing not available in NY and with restrictions in certain areas in FL. All loans are subject to application, approval, credit and product/program terms and conditions. Programs, rates, restrictions, terms and conditions are subject to change without notice. Other restrictions may apply. This is not an offer for extension of credit or a commitment to lend. Not all applicants will qualify. This is an advertisement.
2ARM = Adjustable-rate mortgage
3Rates and payments may increase after the initial rate period.
