Reviewed by the Editorial Team · Updated July 10, 2026 · 6 min read
An adjustable-rate mortgage trades a lower fixed rate for the first 5, 7 or 10 years for a rate that then resets periodically — typically every six months — tied to an index like SOFR plus a fixed margin.
Key takeaways
An ARM trades a lower fixed rate for the first 5, 7, or 10 years for a rate that then resets periodically, often every six months.
Rate caps limit how much the payment can jump at each adjustment and over the loan's life, but it can still rise substantially.
It suits buyers who expect to sell, refinance, or move within the fixed period, or who are buying when fixed rates are elevated.
The adjusted rate tracks an index like SOFR plus a set margin, so payments move with rates the borrower doesn't control.
Intro period
5, 7 or 10 years fixed
Adjusts every
6 months after intro (5/6, 7/6)
Rate caps
Initial, periodic & lifetime (e.g. 2/2/5)
Best for
Short-horizon buyers or high fixed rates
Today's 5/1 ARM intro rate6.10%avg · Optimal Blue OBMMI · as of Jun 27, 2026
Principal & interest only, 30-year term at 6.10%. Taxes, insurance and any mortgage insurance are extra. See today's rates →
How an adjustable-rate mortgage works
An ARM starts with a fixed rate for an initial period — commonly 5, 7 or 10 years — then adjusts on a set schedule for the rest of the term.
5/6 and 7/6: fixed for 5 or 7 years, then adjusts every 6 months
10/6: a decade fixed before the first adjustment
Older 5/1 and 7/1 loans adjust once a year instead of twice
Each new rate is the index value plus a fixed margin set at closing
The index and margin
Most ARMs today use SOFR, the Secured Overnight Financing Rate, as the index. The margin — often 2 to 3 percentage points — stays fixed for the life of the loan; only the index portion moves.
Where the risk lives: rate caps
Caps limit how far your rate can move at each adjustment and over the life of the loan. A typical 5/6 ARM carries 2/2/5 caps.
Reading 2/2/5 caps on a 5/6 ARM
Cap
What it limits
Initial cap
Max change at the first adjustment — often 2 percentage points
Periodic cap
Max change at each later adjustment — often 2 points
Lifetime cap
Max the rate can ever rise above the start rate — often 5 points
Payment shock
If rates rise into the cap at your first reset, a 5/6 ARM's payment can jump by hundreds of dollars a month — budget as if the increase will happen.
Who an ARM fits
An ARM rewards buyers who won't be holding the loan through its first adjustment, not buyers hoping rates stay flat.
Plans to sell or refinance before the fixed period ends
Buying when fixed rates are notably higher than ARM intro rates
Comfortable with payment uncertainty in exchange for near-term savings
Has income cushion to absorb a reset if plans change
Skip it if you intend to stay put for decades or can't absorb a higher payment. Run both scenarios on a mortgage calculator before choosing between an ARM and a fixed-rate loan.
Adjustable-Rate Mortgages: pros and cons
Pros
Lower initial rate than fixed loans
Lower payments during the fixed period
Rate caps limit how high it climbs
Fits short-term ownership plans well
Cons
Payment can rise after the fixed period
Harder to budget for the long term
Refinancing before adjustment isn't guaranteed
Rate tied to an index you don't control
How lenders qualify you for an ARM
Lenders can't approve you on the low introductory rate alone. Underwriting rules require qualifying at a higher rate — closer to what the payment could look like after the first adjustment — so your income and debt-to-income ratio have to support the loan even if rates rise.
Requirements at a glance
Qualification often based on the fully-indexed rate, not just the intro rate
Credit score and down payment requirements similar to a comparable fixed-rate loan
A clear cap structure disclosed at closing (initial, periodic, lifetime)
A realistic exit plan — sale or refinance — before the first adjustment
Ability to handle a higher payment if the rate adjusts upward
The rate is fixed for the first 5 years, then adjusts every 6 months for the rest of the term.
Older ARMs used a 5/1 structure — fixed 5 years, then adjusting once a year — but 5/6 has become the more common version among today's lenders.
How much can an ARM's rate increase?
It depends on the cap structure, commonly written as three numbers like 2/2/5. That means up to 2 points at the first adjustment, up to 2 points at each later adjustment, and no more than 5 points above your starting rate over the life of the loan.
Is an ARM a bad idea?
Not inherently — it depends on your timeline. An ARM makes sense if you'll sell or refinance before the fixed period ends or if fixed rates are unusually high.
It's riskier for buyers planning to stay long-term, since a reset can raise the payment meaningfully.
How much is a $500,000 mortgage at 6% interest?
At 6% over 30 years, principal and interest on a $500,000 loan runs about $2,999 a month, before taxes and insurance.
On an ARM, that payment holds only for the initial fixed period — 5, 7 or 10 years — then adjusts with the index. html">mortgage calculator lets you model your own rate and term.
Did adjustable-rate mortgages cause the 2008 financial crisis?
They were a major contributor, not the sole cause. Millions of subprime ARMs were sold with low two- or three-year teaser rates that reset to payments borrowers couldn't afford, triggering mass defaults.
Today's ARMs are underwritten differently — lenders must qualify you at a higher, worst-case rate, not the teaser rate.
How does an adjustable-rate mortgage compare to a fixed-rate mortgage?
An ARM starts with a lower rate for a set period, often 5-10 years, then adjusts with the market; a fixed-rate mortgage locks one rate for the entire term.
ARMs suit borrowers who expect to sell or refinance before the first adjustment; fixed-rate loans suit those staying long-term who want payment certainty.
This guide is general information, not a lending decision. Program rules and dollar limits change — verify current figures with a licensed lender and confirm licensing at NMLS Consumer Access. See all loan types.
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