Question 1

What is an ARM mortgage?

Accepted Answer

An Adjustable Rate Mortgage has a lower initial rate for a fixed period (typically 3, 5, 7, or 10 years), then adjusts periodically based on market rates. A 5/1 ARM has a fixed rate for 5 years, then adjusts annually.

Question 2

When does an ARM make sense?

Accepted Answer

An ARM can save money if you plan to sell or refinance before the initial fixed period ends, or if you expect rates to drop. If you plan to stay long-term, a fixed rate provides payment certainty.

Question 3

How much lower is the ARM initial rate?

Accepted Answer

ARM initial rates are typically 0.5-1.5% lower than fixed rates. On a $400K loan, that's $200-$600/month savings during the initial period. But after adjustment, the rate could increase significantly.

Question 4

Is there a cap on how much an ARM can adjust?

Accepted Answer

Most ARMs have caps: initial adjustment cap (how much the rate can change at first adjustment), periodic cap (annual adjustment limit), and lifetime cap (maximum rate over the loan). A typical structure is 2/2/5 — max 2% first adjustment, 2% per year, 5% total increase.

ARM vs Fixed Rate Calculator

ARM Naming Convention

ARM vs Fixed Rate Calculator

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ARM Naming Convention