Adjustable rate mortgage loan (ARM Loan) is a term loan option where the interest rate can change periodically after the initial fixed rate period. After this introductory period, the interest rate associated with the mortgage loan is susceptible to increases or decreases based on market fluctuations, ultimately affecting your monthly mortgage payment.
An adjustable-rate mortgage (ARM) is a home loan where your monthly principal and interest payment remains fixed for an initial period—typically 5, 7, or 10 years—and then adjusts periodically for the remainder of the loan term based on prevailing market benchmarks.
Because payments can adjust up or down after the initial fixed period ends, ARMs offer flexibility for buyers with specific short- to medium-term housing plans. Keep in mind, “adjustable-rate” describes the repayment structure rather than a loan type. You can secure an ARM across Conventional, FHA, VA, and USDA mortgage programs.
When is an adjustable-rate mortgage a good idea?
While many buyers choose fixed-rate mortgages for long-term payment predictability, an ARM can be a strategic choice if you plan to move, sell, or refinance before the initial fixed period expires. Because ARMs often feature lower initial starting payments during the early years of the loan, they can offer significant cash flow advantages for buyers aligned with a shorter ownership timeline.
Should I choose an adjustable-rate or fixed-rate mortgage?
The decision comes down to your homeownership timeline and budgeting preference:
Select a Fixed-Rate Mortgage if you plan to stay in the home long-term and value a consistent principal and interest payment that never changes.
Consider an Adjustable-Rate Mortgage if you plan to relocate or refinance within 5 to 10 years, allowing you to take advantage of lower initial monthly payments during your time in the home.
Your Fairway mortgage advisor can review your timeline and compare side-by-side payment scenarios to help you select the right fit.
Key differences between Fixed-Rate and Adjustable-Rate Mortgages include:
Fairway is an equal housing lender. Financial qualifications, minimum credit scores, adjustment caps, and program guidelines apply for all adjustable-rate mortgage products.
