What Is an Adjustable-Rate Mortgage (ARM), and How Does It Work
- By Jim Blackburn
- on
- 100 first time home buyer FAQs
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.
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.
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.
Considering an ARM? Let’s Find Out if It Fits Your Financial Strategy
Download our free “Smart Loan Comparison Guide” — includes ARM vs. Fixed breakdowns and rate adjustment examples
Chat live now to ask how ARMs are structured or compare real-time rates
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