What Is an Adjustable-Rate Mortgage (ARM) and How Does It Work?
- By Jim Blackburn
- on
- Adjustable Rate, Buy A House, Current Mortgage Rates, Financial Planning, First-Time Home Buyer
1. An ARM Starts With a Lower Interest Rate Than a Fixed Mortgage
One of the biggest appeals of an ARM is the initial low interest rate, which is fixed for a set period—commonly 5, 7, or 10 years.
Lower rate = lower monthly payment early on Can help you afford more home in the short term Ideal for buyers who don’t plan to stay long-term
But once that initial fixed period ends… things can change.
See how ARM rates compare to fixed-rate options. Calculate your Conventional Purchase Loan Payment now to compare monthly payments with a fixed-rate loan versus the initial ARM rate and understand the tradeoffs.
2. After the Intro Period, the Rate Adjusts Based on the Market
Once the fixed period is over, your interest rate will adjust periodically—usually every year. The new rate is based on a market index plus a margin set by your lender.
Your rate (and payment) could go up if rates rise
It could go down if rates drop—but that’s not guaranteed
Most ARMs come with rate caps to limit how high (or how fast) your rate can increase
That said, if rates spike dramatically, your monthly budget could feel the heat.
Want to see the real cost difference between loan types? Calculate your Compare 2 Rates (Interest Costs) now to compare total interest costs between an ARM and a fixed-rate mortgage over different time horizons.
3. ARMs Offer Flexibility—But Require Strategy
An ARM might be a great fit if:
- You plan to sell or refinance before the rate adjusts
- You want lower initial payments to save or invest elsewhere
- You understand the risks and have a back-up plan for rising rates
But if you’re buying your forever home, a fixed-rate mortgage might offer more long-term peace of mind.
If you’re planning to refinance before your ARM adjusts, understand what those costs look like. Calculate your Conventional Refinance Rate Reduction Loan Payment now to see if refinancing to a fixed rate makes sense when your adjustment period approaches.
Exploring all your purchase options? Visit our Buy a House page to understand the full range of loan types available and find the right fit for your timeline and financial goals.
Considering an ARM? Let’s Find Out if It Fits Your Financial Strategy
At Stairway Mortgage, we give you the knowledge and options—so you can choose the mortgage that fits your life today and tomorrow.
📘 Download our homebuyer guides comparing ARM and fixed-rate loans.
📊 Check Current Rates for both ARM and fixed options.
🧮 Compare scenarios with our Compare 2 Rates Calculator.
🏠 Explore all options on our Buy a House page.
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