ARM Loan Rates

Fixed-rate mortgages dominate among consumers. But homeowners who are looking for the best rates and don’t intend to stay for a long period in their home should consider an adjustable-rate mortgage. In many cases, lenders offer a lower initial interest rate and if you plan to move before that period is over, you may not need to worry about possible rate increases.

What is an ARM loan?

Also known as variable-rate mortgages, an adjustable-rate mortgage (ARM) offers interest rates that can change periodically, depending on factors such as the financial index associated with your loan. Contrast this with a fixed-rate mortgage where your interest rate remains the same throughout the lifetime of the loan.

Adjustable-rate mortgage rates can increase or decrease, meaning your monthly payment can too. Your loan will have an initial rate when your payment typically remains the same for a stated period that can range up to seven years or more.

Once that period is over, your rate can change depending on the terms set forth by your lender. The time between rate changes — called the adjustment period — will appear in the fine print, so you’ll know exactly when it may go up or down. Typically, ARM interest rates adjust annually after the initial fixed period.

The table below brings together a comprehensive national survey of mortgage lenders to help you know what are the most competitive ARM loan mortgage interest rates. This interest rate table is updated daily to give you the most current rates when choosing an ARM mortgage home loan.

Today's ARM Loan Rates

What is an ARM rate cap?

A rate cap puts a limit on how much your interest rate can go up.

There are two types:

• Period adjustment cap: how much your rate can go up or down within an adjustment period
• Lifetime cap: limits rate increase throughout the lifetime of the loan (by law ARMs must have a lifetime cap)

Keep in mind that a drop in interest rates doesn’t mean your monthly payments go down (or up) right away. Some lenders may hold onto some or all of the rate decline and move it over to the next adjustment period — referred to as a carryover.

For example, if your rate cap is 1 percent and interest rates went up by 2 percent, your lender can hold onto the “extra” 1 percent and increase your monthly payment even if the index rate hasn’t gone up.

Any there any requirements associated with ARM loans?

ARM loans have a few requirements which are similar to other types of mortgages.

Loan amount Typically, homeowners can borrow up to $510,400 for a conforming ARM (limits may be higher in areas with higher home prices). You can take on a jumbo ARM which exceeds the conforming loan limit, though both these types of loans will depend on your creditworthiness.

Credit history The higher your credit score, the more likely you’ll be approved for a loan with competitive interest rates. Lenders will also look at other factors such as your payment history, other loans and income.

Down payment Ideally, you’ll want to put down a 20 percent down payment to avoid PMI (private mortgage insurance) but most conventional ARM loans allow as little as a 5 percent down payment. Government backed loans such as FHA or VA loans may have even lower minimum down payment requirements.

What are the different types of ARM loans?

ARM loans vary depending on how long your initial fixed-rate lasts plus how frequent your adjustment period is afterwards. The most common ones you’ll find are 5/1, 7/1 and 10/1 — the first number is the initial fixed-rate period, the second is the floating-rate or adjustment period.

What is a 5/1 ARM loan?

This type of adjustable-rate mortgage offers a five-year initial fixed rate then adjusts every year afterwards. This type of ARM generally offers lower initial interest rates than many fixed-rate loans.

Borrowers who don’t want a long-term mortgage — such as those who are refinancing and have just a few years left on their loan — can benefit the most from a 5/1. However, if you’re unsure whether you can pay off the loan amount before the rate reset or may not move within that time, you’re at risk of an increased monthly payment.

What is a 7/1 ARM loan?

The 7/1 ARM can be the best of both worlds — a seven-year initial period which can offer homeowners a lower fixed rate for a longer period of time. The benefit is that you can expect significant savings in interest, plus you can enjoy the rate for seven years, which begins to approach the 11-year average U.S. homeowners stay put in one place.

At the end of the seven years, you are exposed to a substantial interest rate increase throughout the lifetime of your loan. However, rates may fall further during this period, so you might benefit as well with a lower payment after the reset.

What is a 10/1 ARM loan?

A 10/1 ARM loan offers a 10-year initial fixed period and rate adjustments every year afterwards. This type of loan offers savings via your initial rate and a longer period to protect homeowners from fluctuations in interest rates. However, if rates go down (which can happen during this longer timeframe) within your initial loan period, your payments won’t go down until the rest year.

When should I get an ARM loan rather than a fixed-rate loan?

Here are a few scenarios when it could make more sense to take out an ARM loan:

• You don’t plan on staying long in your home. Homeowners who stay in their home for just a few years might benefit from a 3/1 or 5/1 ARM if the rates are competitive. The savings could mean extra cash flow for other financial goals.
• Interest rates are relatively high. ARMs might be a better bet since lower interest rates may be more accessible to those who want to purchase a home.

How do Fed announcements impact ARM loans?

When the Fed announces rate increases or decreases, ARM loan rates could change when their initial or adjustment period is over. That means your rate could drop if the Fed announces interest rates decrease during your adjustment period. Or the rate could rise.

As mentioned above, lenders might not drop rates even if the index decreases. That’s why it’s important to look at whether you can afford the higher payments, whether rates go up or down. Even if your initial payment is lower, you’ll most likely face higher rates once it’s over.

How to get the best ARM rate

When looking for the best adjustable rate mortgage rates, doing your due diligence helps. This means checking your credit report and your income situation to see where you stand — it’ll give you an insight into what rates you might qualify for.

Then shop around. Bankrate has compiled information from numerous lenders all over the country to bring you personalized rates. Before deciding, take a look at various aspects of the loan such as the APR, payment or interest caps and any fees associated with the loan.

What does it mean to refinance an ARM loan?

Refinancing an ARM loan is a common way to help with the uncertainty of fluctuating rates — fixed-rate loans are a good fit for this reason. What happens is that when you refinance, you’ll be offered a rate (which can be higher than your initial rate) which stays the same throughout the lifetime of the loan.

There are fees associated with refinancing, so make sure the benefits outweigh the costs you could pay. You may even want to refinance into another ARM, if the timing and rate work for you.

When should you refinance an ARM loan?

A few scenarios when it makes sense to refinance include:

• You want predictable monthly payments. If affording potential higher payments is a challenge and put you behind on payments, refinancing to a fixed-rate mortgage can offer predictability.
• You want to pay off an interest-only ARM. Some ARM loans let borrowers pay interest only for a certain period of time. Since there are no principal payments towards the loan balance, your payments are low until the initial period is over, then they spike significantly.
• You’re going to experience income changes. Maybe your income will go down due to retirement or a job change. In this case, refinancing to a fixed rate will help you budget better instead of worrying about whether your ARM payments will go up in the future.

When should you refinance into an ARM loan out of another type of loan?

An ARM might be a good refinance choice for borrowers who have a clear timeframe for selling their home or paying off their mortgage within the initial fixed-rate period.

However, keep in mind that you might not be able to sell your home in time before your rate goes up. Keep in mind that millions of homeowners were unable to refinance their mortgages during the real estate meltdown of a decade ago because they had negative equity.

You’ll want to look carefully at index rates, as well as the lender’s index margin. Some loans also have prepayment penalties, so check the fine print before signing on the dotted line if your goal is to pay off your mortgage off as quickly as possible.

Learn more about specific loan type rates

Loan Type	Purchase Rates	Refinance Rates
The table above links out to loan-specific content to help you learn more about rates by loan type.
30-Year Loan	30-Year Mortgage Rates	30-Year Refinance Rates
20-Year Loan	20-Year Mortgage Rates	20-Year Refinance Rates
15-Year Loan	15-Year Mortgage Rates	15-Year Refinance Rates
10-Year Loan	10-Year Mortgage Rates	10-Year Refinance Rates
FHA Loan	FHA Mortgage Rates	FHA Refinance Rates
VA Loan	VA Mortgage Rates	VA Refinance Rates
ARM Loan	ARM Mortgage Rates	ARM Refinance Rates
Jumbo Loan	Jumbo Mortgage Rates	Jumbo Refinance Rates