Best for
Borrowers with a clear plan to sell, refinance, or pay down before the fixed period ends.
- Lower intro rate than a comparable 30-year fixed
- Caps limit each adjustment and the lifetime rate
- Fits a defined ownership horizon
Reading the caps
A 5/6 ARM with 2/1/5 caps means: fixed for five years, then adjusts every six months, with a 2% first adjustment cap, 1% per adjustment after, and 5% over the life of the loan. Those numbers define your worst case, know them before signing.
When an ARM is the wrong tool
If you plan to stay indefinitely and the savings versus a fixed rate are small, take the fixed. An ARM should be a decision about your timeline, not a way to stretch into a payment you can't hold.
Qualifying
ARMs are underwritten conservatively, and the qualifying rate may be higher than the intro rate depending on program and term.