🏡 What Is an ARM Loan? Understanding Adjustable-Rate Mortgages

If you’ve been exploring mortgage options, you might’ve come across something called an ARM, or Adjustable-Rate Mortgage. These loans can offer lower initial payments—but they work a little differently than traditional fixed-rate loans. Let’s break it down.

🔄 What Is an ARM Loan?

An ARM is a mortgage with an interest rate that starts fixed for a set period, then adjusts periodically based on the market.

Common types include:

• 5/1 ARM – Fixed for 5 years, then adjusts every 1 year.

• 7/1 ARM – Fixed for 7 years, then adjusts every 1 year.

The first number is the fixed-rate period. The second is how often it adjusts after that.

💵 Why Choose an ARM?

1. Lower initial rates – ARMs typically offer a lower rate upfront compared to fixed-rate loans, which means lower initial monthly payments.

2. Good for short-term homeowners – If you plan to sell or refinance before the rate adjusts, you could save big.

3. Can help with affordability – Especially in high-rate markets, an ARM can make monthly payments more manageable early on.

⚠️ What to Watch For

• Rate increases – After the fixed period, your rate (and monthly payment) can go up or down, depending on the market.

• Caps and limits – Most ARMs have caps that limit how much the rate can increase each year and over the life of the loan.

• Budgeting ahead – Be prepared for the possibility of higher payments in the future.

📌 Key Takeaways

• ARMs offer lower upfront costs but come with future uncertainty.

• Best suited for short-term homeowners or savvy borrowers who plan ahead.

• Always review the loan terms, rate caps, and potential future payments before committing.

🔍 Ready to Learn More?

Have questions about ARM loans or whether they make sense for your situation? I’m here to help walk you through the numbers and help you make a confident choice.