{"id":104821,"date":"2025-08-13T12:00:31","date_gmt":"2025-08-13T19:00:31","guid":{"rendered":"https:\/\/www.redfin.com\/blog\/?p=104821"},"modified":"2025-08-13T12:00:31","modified_gmt":"2025-08-13T19:00:31","slug":"what-is-an-adjustable-rate-mortgage","status":"publish","type":"post","link":"https:\/\/www.redfin.com\/blog\/what-is-an-adjustable-rate-mortgage\/","title":{"rendered":"What Is an Adjustable-Rate Mortgage? How ARM Loans Work"},"content":{"rendered":"

If you’re exploring mortgage options, you\u2019ve likely come across the term adjustable-rate mortgage \u2013 also called an ARM loan or ARM mortgage. But what exactly is an adjustable-rate mortgage, and how does it work? Whether you\u2019re browsing <\/span>homes for sale in Denver, CO<\/span><\/a> or planning to make an offer on a <\/span>home in Miami, FL<\/span><\/a>, knowing how an ARM works can help you choose the best financing option for your needs.<\/span><\/p>\n

This Redfin guide explains what an adjustable-rate mortgage is, how it works, the different types available, their pros and cons, and who they might be right for.<\/span><\/p>\n

\"financing<\/p>\n

What is an adjustable-rate mortgage?<\/span><\/h2>\n

An adjustable-rate mortgage (ARM) is a <\/span>type of home loan<\/span><\/a> where the interest rate can change over time. Unlike a fixed-rate mortgage, which keeps the same rate for the entire term, an ARM mortgage typically starts with a lower introductory interest rate that adjusts periodically based on market conditions.<\/span><\/p>\n

How an adjustable-rate mortgage works<\/span><\/h2>\n

ARM loans have two phases:<\/span><\/p>\n

    \n
  1. Initial fixed-rate period:<\/b> This is usually 3, 5, 7, or 10 years, during which the interest rate is fixed and typically lower than a fixed-rate mortgage.<\/span><\/li>\n
  2. Adjustment period:<\/b> After the fixed period ends, the interest rate can adjust annually (or sometimes more frequently), based on an <\/span>index<\/b> (like the SOFR or Treasury index) plus a fixed <\/span>margin<\/b> set by the lender.<\/span><\/li>\n<\/ol>\n

    ARM loan vs. fixed-rate mortgage<\/span><\/h2>\n\n\n\n\n\n\n
    Criteria<\/b><\/td>\nARM Loan<\/b><\/td>\nFixed-Rate Mortgage<\/b><\/td>\n<\/tr>\n
    Interest Rate<\/b><\/td>\nStarts lower, adjusts later<\/span><\/td>\nStays the same for full term<\/span><\/td>\n<\/tr>\n
    Monthly Payment<\/b><\/td>\nCan increase or decrease<\/span><\/td>\nStays consistent<\/span><\/td>\n<\/tr>\n
    Best for<\/b><\/td>\nShort-term buyers or refinancers<\/span><\/td>\nLong-term homeowners<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

    Types of adjustable-rate mortgages<\/span><\/h2>\n

    ARM loans come in different structures, often identified by two numbers (like 5\/1 or 7\/6) that describe the fixed period and how often the rate adjusts afterward. Understanding the types of ARMs can help you choose the right one for your financial goals. Common ARM Types:<\/span><\/p>\n