Adjustable-rate mortgages (ARMs) can come with initial rates lower than comparable 30-year fixed mortgage rates. When mortgage rates rise, borrowers are often drawn to the temporary payment savings offered by initial ARM rates.
However, ARMs haven’t reliably outcompeted 30-year fixed-rate mortgages in recent years, so it’s not safe to assume you’ll get a better rate with an ARM — you need to shop around and compare rate offers.
Read more about whether rates are predicted to rise in our mortgage interest rates forecast.
An adjustable-rate mortgage is a home loan that features an interest rate that changes over time. Most lenders offer ARMs with initial rates that are fixed for three, five or seven years.
When the initial fixed-rate period ends, the adjustable-rate repayment period begins. The ARM’s rate can then rise, fall or stay the same, depending on the movements of the broader market.
Lender | LendingTree rating | ARM loan terms offered | Locations available | Avg. total loan costs
Average total loan costs include orginiation fees and are based on 2023 data from the Federal Financial Institutions Examination Council (FFIEC).
| Rate spread
Rate spread is the difference between the average prime offer rate (APOR) — the lowest APR a bank is likely to offer any private customer — and the average annual percentage rate (APR) the lender offered to mortgage customers in 2023. The higher the number, the more expensive the loan.
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|---|---|---|---|---|---|
 | 7 years 10 years | All 50 states & D.C. | $8,122 | 0.73% | |
 | 5 years 7 years 10 years | All 50 states & D.C. | $7,794 | 0.02% | |
| 5 years 7 years 10 years | All 50 states & D.C. | $4,932 | -0.22% | |
| 5 years 7 years 10 years | 49 states & D.C. New York excluded | $11,690 | 0.40% | |
 | 5 years 7 years 10 years | All 50 states & D.C. | $8,170 | 0.49% |
Unlike a conventional mortgage, ARMs have two distinct phases: an initial phase with a fixed, low interest rate, and an adjustable phase where your mortgage rate (and payment) will fluctuate based on market conditions.
ARM rates are calculated using two numbers:
ARMs have names that tell you how and when the rate will adjust. A 5/1 ARM, for example, comes with a five-year initial period during which the rate is fixed. After that, the rate will adjust once per year.
An ARM’s interest rate adjustments are governed by three limits, called rate caps. You’ll usually see them listed out with slashes between them, for example: 2/2/5.
Learn more about how ARM loans work by reading the Consumer Handbook on Adjustable-Rate Mortgages, which lenders are required to provide to ARM borrowers.| Pros | Cons |
|---|---|
Lower initial rates. The initial rate for an ARM may be lower than fixed-rate loans. Lower monthly payments at first. Low initial rates can translate to lower monthly payments during the first few years of your mortgage. Extra cash can be used to pay down your loan balance. You can use the savings to pay off your mortgage faster and build home equity. Alternatively, you can use the funds for other financial goals, like saving for college or retirement. | The rate could spike after the teaser-rate period ends. If you still have the ARM loan when the adjustment period begins, your rate could increase. The payment could become unaffordable. An ARM payment increase could stretch your budget thin, especially if your income has dropped or you’ve taken on other debt. Defaulting on the loan could lead to foreclosure. The qualifying standards may be more stringent. ARM lenders may require a higher credit score, larger down payment or restrict the amount of equity you can tap. |
Yes, you can refinance an ARM just as you can any other mortgage loan. Doing so makes the most sense when you can get a lower ARM rate.
LendingTree’s senior economist, Jacob Channel, recommends that you aim for a rate that’s 50 to 100 basis points Basis points are units used to measure changes in interest rates. One hundred basis points are equal to 1 percentage point, so 50 basis points are equal to 0.50% lower than the one you already have.
Yes, you always have the option to refinance an ARM into a fixed-rate loan — as long as you can qualify based on your credit, income and debt.
It’s common for homeowners to refinance into a fixed-rate mortgage before their ARM’s first adjustment. That way, they never have to deal with the risk of expensive rate adjustments and can enjoy stable payments over the life of the loan.
ARM rates can help if you’re looking to save money over a short period of time. It makes sense to choose an adjustable-rate mortgage if:
A hybrid ARM is an ARM with an initial period during which the rate is fixed, and an adjustment period during which the rate may change. It’s considered “hybrid” because it has those two, distinct payment schedules during the term: A fixed-rate schedule at first, followed by an adjustable payment schedule for the remaining loan term. A traditional ARM doesn’t come with an initial fixed-rate period — its rate is always on an adjustable payment schedule.
A 5/1 ARM rate gives you an initial rate that’s fixed for five years, and then adjusts every year for the rest of the loan’s term.
Yes, the rate on an ARM can go down when it adjusts. In order for this to happen, mortgage rates would need to drop, bringing the index used to calculate your ARM’s rate down in tandem.
