ARM loan rates

Today's ARM loan rates

What is an ARM loan?

Adjustable-rate mortgages, or ARMs, are home loans that come with a floating interest rate. In other words, the interest rate can change periodically throughout the life of the loan, unlike fixed-rate mortgages.

Since the rate on ARMs can increase or decrease, your monthly payment can, too. ARMs are structured with a fixed-rate period and a floating-rate period. During the first few years your rate is fixed, but after that period ends your rate becomes adjustable. These are typically called 5/1 or 7/1 ARMs, which signify that the first five or seven years of the loan will have a fixed rate.

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.

ARM loan vs. fixed-rate loan

There are pros and cons of both ARMs and fixed-rate mortgages. Your financial goals will dictate which one makes sense for you.

ARMs generally have lower introductory rates compared with 30-year fixed-rate mortgages. So, for someone who plans to sell their house, pay off the loan or refinance before the fixed-portion of the ARM expires (see above), then an ARM might be a cheaper option.

If you’re comparing ARM rates to shorter-term fixed-rate options, then you might find that those rates are about the same. The difference is that with ARMs you can spread the payment over 30 years, so you can get a low rate (on par with a 10-year fixed-rate mortgage) without the high monthly costs. The ARM option, in this scenario, might make sense if you don’t plan on staying in the house long-term.

Do ARM loans have a rate cap?

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

There are two types of caps:

• 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 will go down (or up) right away. Some lenders may hold on to 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 percentage point and interest rates went up by 2 percent, your lender can hold onto the “extra” 1 percent and increase your monthly payment in the future even if the index rate hasn’t gone up.

Are 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?

The most common types of ARMs are also known as hybrid ARMs. These have initial fixed-rate periods followed by a floating rate for the remainder of the loan. Hybrid ARMs include:

• 5/1 ARM: The first 5 years have a fixed rate followed by a floating rate for the remainder of the loan.
• 7/1 ARM: The first 7 years have a fixed rate followed by a floating rate for the remainder of the loan.
• 10/1 ARM: The first 10 years have a fixed rate followed by a floating rate for the remainder of the loan.

Usually, 5/1 ARMs have the lowest interest rate of the bunch. For those who think they’ll refinance or sell within five years, this could be the most cost-effective option.

Of course, it’s also a gamble. If your income or credit situation changes for the worse, you might not be able to refinance. And, if you can refinance, you might end up with a higher rate than if you would have gotten a fixed-rate loan in the first place.

Planning to sell your home could also hit speed bumps, which means you could be paying a higher adjustable rate longer than you expected. Of course, the rate could fall as well.

VA and FHA ARMs

There are also VA and FHA ARMs which are basically the same loans, with the same qualifications and requirements, but with an adjustable rate.

The only advantage to a VA or FHA ARM is that the interest rate is lower (during the initial period) than a fixed-rate VA or FHA mortgage.

If you know that you won’t keep the house longer than the initial period, you could end up saving money. If you stay with an ARM past the fixed-rate period, you run the risk of your rate rising (it could also fall if rates drop).

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
30-Year FHA Loan	30-Year FHA Loan Rates	30-Year FHA Refinance Rates
VA Loan	VA Mortgage Rates	VA Refinance Rates
ARM Loan	ARM Mortgage Rates	ARM Refinance Rates
5/1 ARM	5/1 ARM Rates	5/1 Refinance Rates
7/1 ARM	7/1 ARM Rates	7/1 Refinance Rates
10/1 ARM	10/1 ARM Rates	10/1 Refinance Rates
Jumbo Loan	Jumbo Mortgage Rates	Jumbo Refinance Rates
30-Year Jumbo Loan	30-Year Jumbo Loan Rates	30-Year Jumbo Refinance Rates