Adjustable Rate Mortgage (ARM): How It Works & Is It Right for You?
An adjustable rate mortgage (ARM) is a home loan with an interest rate that can change over time.
With FBKC Mortgage and your dedicated FBKC loan officer, you can explore whether an ARM may offer the flexibility and savings you’re looking for—especially in the early years of your loan.
What Is an Adjustable Rate Mortgage?
An adjustable rate mortgage (ARM) is a loan that starts with a fixed interest rate for an initial period, then adjusts periodically based on market conditions. The first number represents the fixed-rate period (in years), and the second number shows how often the rate adjusts after that
- 5/1 ARM
- 7/1 ARM
- 10/1 ARM
How Does an ARM Work?
An ARM has two main phases:
Fixed-Rate Period
- Your interest rate stays the same
- Your monthly payment is stable
- Typically lasts 5, 7, or 10 years
Streamlined online process
From online application to e-closing options, our digital mortgage platform makes the process quick and convenient.
Adjustment Period
- Your rate adjusts based on a market index
- Payments may increase or decrease
- Adjustments usually happen annually
Benefits of an Adjustable Rate Mortgage
Lower initial interest rate
Lower starting monthly payment
Potential savings in the early years
Flexibility for shorter-term homeownership
Adjustable Rate Mortgage vs Fixed Rate Mortgage: What’s the Difference?
Adjustable Rate Mortgage (ARM)
- Lower initial interest rate
- Rate can change over time
- Potential for lower early payments
Fixed Rate Mortgage
- Stable interest rate
- Predictable payments
- No rate changes
When Does an ARM Make Sense?
An ARM may be a good fit if:
- You plan to move or refinance within a few years
- You want lower initial payments
- You expect income to increase over time
- You want to maximize short-term savings
Frequently Asked Questions About Adjustable Rate Mortgages
With reliable and easy to understand answers.
What is an adjustable rate mortgage?
An adjustable rate mortgage is a home loan with an interest rate that starts fixed for a set period and then adjusts periodically based on market conditions.
Are ARM loans a good idea?
ARM loans can be a good option if you plan to move or refinance before the rate adjusts, or if you want lower initial payments.
How often do ARM rates change?
After the initial fixed period, most ARM rates adjust once per year.
What is a 5/1 ARM?
A 5/1 ARM has a fixed interest rate for the first 5 years, then adjusts annually after that.
Can ARM rates go down?
Yes. If market rates decrease, your ARM rate may also go down, depending on your loan terms.
What are ARM rate caps?
Rate caps limit how much your interest rate can increase at each adjustment and over the life of the loan.
Is an ARM better than a fixed-rate mortgage?
It depends on your goals. ARMs offer lower initial rates, while fixed-rate mortgages provide long-term stability.
What are the risks of an ARM?
It’s important to understand the trade-offs:
- Rates can increase after the fixed period
- Monthly payments may rise
- Less long-term payment predictability
Working with FBKC Mortgage, you can evaluate whether the benefits outweigh the risks.