An Adjustable-Rate Mortgage (ARM), also known as a variable-rate mortgage, is a home loan where the interest rate can change periodically based on market conditions and the financial index associated with the loan. As interest rates rise or fall, the monthly mortgage payment may increase or decrease over the life of the loan.

One of the main benefits of an ARM loan is that the initial interest rate is typically lower than that of a comparable fixed-rate mortgage. This can result in lower initial monthly payments and increased purchasing power for qualified borrowers.

Many homebuyers choose an ARM mortgage because they:

Plan to refinance in the future
Do not intend to stay in the home long-term
Expect their income to increase significantly over time
Want lower initial monthly mortgage payments
How Adjustable-Rate Mortgages Work

Most ARM loans begin with an initial fixed-rate period, during which the interest rate remains unchanged. After this fixed period ends, the interest rate adjusts periodically according to the terms of the loan and current market conditions.

ARM loans are commonly identified using formats such as:

3/1 ARM — Fixed rate for 3 years, then adjusts annually
5/1 ARM — Fixed rate for 5 years, then adjusts annually
5/5 ARM — Fixed rate for 5 years, then adjusts every 5 years
7/1 ARM — Fixed rate for 7 years, then adjusts annually

10/1 ARM — Fixed rate for 10 years, then adjusts annually

Because adjustable-rate mortgages can change over time, it is important for borrowers to fully understand how adjustment periods, interest rate caps, indexes, and margins work before selecting this type of mortgage loan.

For borrowers who plan to move, refinance, or increase their income before the fixed-rate period expires, an ARM loan can be a strategic financing option.