Adjustable-rate mortgage (ARM)

To qualify for an Adjustable-Rate Mortgage, most borrowers need a minimum down payment of at least 5%, a credit score of 620 or higher, and a debt-to-income (DTI) ratio below 45% (or up to 50% for select borrowers**)

Requirements can vary depending on the loan program, property type, and your financial profile. It's best to speak with a loan expert to review your specific options.

To qualify for an Adjustable-Rate Mortgage, most borrowers need a minimum down payment of at least 5%, a credit score of 620 or higher, and a debt-to-income (DTI) ratio below 45% (or up to 50% for select borrowers**)

Requirements can vary depending on the loan program, property type, and your financial profile. It's best to speak with a loan expert to review your specific options.

ARMs come in several forms, such as 5/1, 7/1, and 10/1. The first number represents how long your rate stays fixed before adjustments begin, and the second indicates how often your rate can change after that (typically once per year).

A 5/1 ARM, for example, stays fixed for five years and then adjusts annually. Longer fixed periods (like 7/1 or 10/1) offer more initial stability buy may come with slightly higher starting rates.

An ARM could be a great fit if you plan to move, refinance, or pay off your home within the initial fixed-rate period. You'll enjoy lower introductory rates and payments, which can free up cash for savings, investments, or even home improvements.

However, if you plan to stay in your home long-term or value predictable payments, a fixed-rate mortgage may be the safer choice.

When your ARM enters the adjustment phase, your rate can increase or decrease based on the index it's tied to (such as the SOFR index) plus a margin set by your lender. However, ARMs include built-in rate caps that limit how much your rate can change at one time (and over the life of the loan) helping protect you from large, unexpected jumps in your monthly payment.

A fixed-rate mortgage keeps the same interest rate and payment amount for the entire life of the loan, offering long-term stability. An ARM loan starts with a lower introductory rate, then adjusts periodically after the fixed period ends. The trade-off: ARMs typically offer lower upfront costs but may rise or fall over time with market conditions.

In the case of rising rates, your ARMs interest rate and monthly payment could increase once the fixed period ends. Many homeowners in this situation choose to refinance into a fixed-rate mortgage before their first adjustment to lock in a preferred steady payment. Talking with your loan officer early can help you plan ahead and decide when a refinance makes sense.