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ARM loan rates

On Tuesday, October 03, 2023, the national average 5/1 ARM APR is 8.18%. The average 10/1 ARM APR is 8.19%, according to Bankrate's latest survey of the nation's largest mortgage lenders.

On Tuesday, October 03, 2023, the national average 5/1 ARM APR is 8.18%. The average 10/1 ARM APR is 8.19%, according to Bankrate's latest survey of the nation's largest mortgage lenders.

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Today's ARM mortgage rates

Lenders nationwide provide weekday mortgage rates to our comprehensive national survey. Here you can see the latest marketplace average rates for a wide variety of purchase loans. The interest rate table below is updated daily to give you the most current purchase rates when choosing a home loan. APRs and rates are based on no existing relationship or automatic payments. For these averages, the customer profile includes a 740 FICO score and a single-family residence. To learn more, see understanding Bankrate rate averages.

Product Interest Rate APR
5/1 ARM 6.72% 8.18%
7/1 ARM 6.85% 8.21%
10/1 ARM 7.25% 8.19%

Rates as of Tuesday, October 03, 2023 at 6:30 AM

What is an adjustable-rate mortgage (ARM)?

Adjustable-rate mortgages, or ARMs, are home loans with a floating interest rate. As opposed to fixed-rate mortgages, the interest rate on an ARM changes periodically throughout the life of the loan. Since the rate on ARMs can change, your monthly payment might increase or decrease.

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 at predetermined intervals. For example: With 5/1 or 7/1 ARMs, the first five or seven years of the loan, respectively, come with a fixed rate. After that, the rate adjusts once a year. With 5/6 or 7/6 ARMs, the rate changes every six months after the first five or seven years, respectively.

Adjustable-rate mortgages are best for:

  • Borrowers planning to sell the home before the end of the introductory fixed-rate period.
  • Borrowers looking for a starting monthly payment that’s lower than the payments available with fixed-rate loans.
  • Borrowers who have the financial flexibility to weather higher mortgage payments in the future.

How do adjustable-rate mortgages work?

Adjustable-rate mortgages are loans with an interest rate that changes after an initial fixed period. The most common adjustable-rate mortgage, the 5/1 or 5/6 ARM, has a fixed period of five years at the start of the loan, which usually has a lower interest rate relative to market conditions. After that initial period ends, the rate will adjust based on the prevailing market rate, either annually (“1”) or every six months (“6”).

Below is an example of how a 5/1 ARM could differ from a traditional 30-year fixed mortgage:

30-year fixed-rate mortgage 5/1 ARM
Loan principal $325,360 $325,360
Interest rate 7.53% 6.50%
Initial monthly payment $2,281 $2,056
Total interest $496,683 $562,041
Total payments $822,043 $887,401

*Notes: Interest rates as of Aug. 28, 2023; monthly payments do not include insurance or taxes.

To see what the monthly payments would look like for your loan, check out Bankrate’s ARM or fixed-rate calculator.

ARM loan requirements

  • Loan amount: In 2023, homebuyers can borrow up to $726,200 for a conforming ARM (limits are 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 might be harder to secure.
  • Credit and income: With a higher credit score, you’re more likely to be approved for a competitive interest rate. Lenders will also look at other factors such as other debt and income.
  • Down payment: It’s ideal to put down a 20 percent down payment so you can avoid PMI (private mortgage insurance), which adds to your monthly mortgage payment. However, most conventional ARM loans allow as little as 5 percent down (with PMI).

Pros and cons of an adjustable-rate mortgage

Pros of ARM loans

  • It has lower rates and payments early in the loan term.
  • Borrowers might be able to invest their monthly savings.
  • It offers a lower-cost option for borrowers who plan to move out of the house before the fixed period ends.

Cons of ARM loans

  • Rates and payments can rise significantly over the life of the loan.
  • Some annual caps don’t apply to the initial loan adjustment, so it might be difficult to swallow that first reset.
  • These loans are more complex, so borrowers need to be more active and savvy in managing their accounts.

ARM loan FAQ

Refinancing into an ARM

You might consider refinancing into an ARM under the following circumstances:

  • You’re going to sell your home in the next few years. Choose an ARM term strategically so that the adjustment period starts around your target sale date.
  • You expect your income is going to rise. If so, you can take advantage of the lower rate during the initial period without the risk of being unable to afford the higher payment when the rate resets.
  • Your top priority is getting a low interest rate today. An ARM might be worth it if you want the lowest rate possible during your first few years of the loan, but you should be comfortable with the likelihood that your payments will rise when the rate resets.

Refinancing into an ARM might not be a good move if any of the following apply to you:

  • Your income isn’t stable. If you’re self-employed, for example, or your income fluctuates for another reason, you risk not being able to afford higher payments.
  • You don’t expect to bring in more income. Before committing to an ARM, consider whether your income is likely to increase sufficiently by the time the rate resets.
  • You won’t break even on refinance closing costs. Just like when you closed on your original mortgage, closing on your new loan will cost you in fees. The savings from a lower payment during the initial period might not outweigh the upfront cost, which can be as high as 5 percent of the amount that you’re refinancing.

ARM loan resources

Written by: Jeff Ostrowski, senior mortgage reporter for Bankrate

Jeff Ostrowski covers mortgages and the housing market. Before joining Bankrate in 2020, he wrote about real estate and the economy for the Palm Beach Post and the South Florida Business Journal.

Read more from Jeff Ostrowski