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.