Adjustable-Rate Mortgages (ARMs)
A fixed introductory rate, then a rate that adjusts on a set schedule.
An adjustable-rate mortgage starts with a fixed rate for an introductory period, then adjusts at regular intervals based on a market index plus a set margin, within caps written into your loan.
Who may qualify for an ARM
ARMs are offered in conventional loans and in some government programs; availability varies by lender. They’re often considered by buyers who expect to move or pay down the loan within the introductory period, or who can comfortably handle a higher payment later.
- Names like 5/1 or 7/6 describe the introductory period in years and how often the rate can adjust afterward (every year, or every six months).
- Lenders must make a good-faith determination that you can repay the loan, including at the higher rate it can reach, not just the introductory rate (CFPB).
How down payments work
Down payments follow the loan type. For a conventional one-unit primary residence, Fannie Mae’s maximum LTV is 95% for ARMs, so the minimum is generally 5% instead of 3% (Eligibility Matrix).
Credit and income considerations
Fannie Mae’s minimum credit score for manually underwritten ARMs is 640 (B3-5.1-01). Lenders review whether the payment would still fit your budget after the rate adjusts.
How the rate is set: after the introductory period, your rate generally equals an index (a market benchmark, such as SOFR) plus a margin set in your loan documents (CFPB).
Caps limit changes. They’re often written like 2/1/5: the most the rate can change at the first adjustment, at each later adjustment, and over the life of the loan (CFPB CHARM booklet).
Mortgage insurance or funding fees
Mortgage insurance and fees follow the loan type, the same as with a fixed-rate loan.
Key advantages
- Lower introductory rate than a comparable fixed rate in many markets (CFPB).
- Can fit a plan to sell, refinance, or pay down the loan within the introductory period.
- Caps set a known worst case for the rate.
- If rates fall, your rate can adjust down (subject to the loan’s terms).
Important limitations and risks
- Payments can rise after the introductory period, sometimes significantly.
- Plans change: selling or refinancing before the adjustment isn’t guaranteed.
- If the home loses value, refinancing may be harder.
- ARM terms are more complex; compare index, margin, caps, and adjustment frequency carefully.
Common misconceptions
MythI’ll refinance before it adjusts.
RealityMaybe. Refinancing depends on future rates, your home’s value, and your finances. The CFPB warns not to count on it.
MythARMs are always risky.
RealityCaps set a known worst case. The question is whether that worst-case payment fits your budget.
MythThe rate can go up without limit.
RealityCaps limit each adjustment and the lifetime increase. Your loan documents state them.
Questions to ask before choosing
- What are the index, margin, and caps (first, periodic, and lifetime)?
- What is the highest payment this loan could ever reach, and could I afford it?
- How long is the introductory period, and how often does the rate adjust afterward?
- How does the introductory rate compare with a fixed rate for my price?
- Is there a prepayment penalty?
Compare ARM with another option.
Open the comparison tool with ARM already selected, or browse all ten guides.
Keep comparing.
Fixed-Rate Mortgages
The interest rate is set at closing and doesn’t change for the life of the loan.
Read the guide →Loan typesConventional Mortgages
Not government-insured. Usually follows Fannie Mae or Freddie Mac guidelines.
Read the guide →Specialized financingMedical Professional Mortgage Programs
Programs some lenders design for physicians and certain other medical professionals.
Read the guide → All guidesMortgage Programs Center
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Compare programs →ARM questions, answered.
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Ask Shane a question →How does an adjustable-rate mortgage work?
An ARM has a fixed introductory rate for a set period. After that, the rate adjusts at regular intervals to an index plus a margin, limited by caps written into the loan.
What do ARM names like 5/1 or 7/6 mean?
The first number is the introductory period in years. The second describes how often the rate can adjust afterward, such as every year or every six months.
What are ARM caps?
Caps limit how much the rate can change at the first adjustment, at each later adjustment, and over the life of the loan. They’re often written like 2/1/5.
How much do I need down for a conventional ARM?
For a one-unit primary residence, Fannie Mae’s maximum LTV for ARMs is 95%, so generally 5% down.
Can I refinance before my ARM adjusts?
Possibly, but it isn’t guaranteed. It depends on future rates, your home’s value, and your finances.
Sources
- CFPB: Fixed-rate vs. adjustable-rate mortgages
- CFPB: ARM index and margin, and how they work
- CFPB: Consumer Handbook on Adjustable-Rate Mortgages (CHARM booklet)
- CFPB: What is the ability-to-repay rule?
- Fannie Mae Eligibility Matrix (maximum LTV by occupancy, units, and product; Aug. 5, 2026)
- Fannie Mae Selling Guide B3-5.1-01: General requirements for credit scores
Important: This page is educational and general in nature. It isn’t a recommendation, a loan offer, a rate quote, a Loan Estimate, an approval, or a determination of eligibility. Program guidelines, limits, fees, and availability change and vary by lender and investor; actual eligibility, pricing, and terms require a full application and review. References to a program don’t mean Ease Mortgage currently offers it; ask Shane about current availability. Information was last reviewed November 9, 2026. Shane Thomas, Senior Loan Officer | Ease Mortgage, NMLS #444451. Ease Mortgage NMLS #2273319. Licensed in Michigan and Indiana. Equal Housing Opportunity.
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