Adjustable-Rate Mortgage (ARM)

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An Adjustable-Rate Mortgage (ARM) is a home loan whose interest rate is fixed for an initial period and then adjusts periodically based on a market index.

ARMs are often described with two numbers, such as 5/1, meaning the rate stays fixed for five years and then can adjust once each year afterward. The starting rate is usually lower than a comparable fixed-rate loan, which can mean smaller early payments. After the fixed period ends, your payment can rise or fall, and rate caps limit how much it can change at each adjustment and over the life of the loan.

An ARM can suit borrowers who plan to move or refinance before the rate starts adjusting. Compare scenarios with the main calculator or a refinance calculator.

Related terms: Fixed-Rate Mortgage, Annual Percentage Rate (APR)