What is a 5/1 ARM loan and should I get one?

What is a 5/1 ARM loan? An 5/1 adjustable-rate mortgage, also called a 5/1 ARM, is a home loan with an interest rate that changes throughout the loan. These types of adjustable-rate loans typically grow in popularity during times of rapidly rising mortgage rates.

What is a 5/1 arm?

A 5/1 ARM is one type of adjustable-rate mortgage. The “5/1” refers to the length of the fixed-rate period and the frequency of rate changes, respectively. The “5” is the fixed-rate period of the mortgage — the first five years. The “1” is how often the interest rate adjusts after that — once per year.

Can a 5/1 arm rate be lower than a 20-year loan?

In some cases, you may get a lower initial 5/1 ARM rate than you'll get with a 20-year or 15-year fixed loan, too. Having a lower interest rate tied to your home loan for five years could make your mortgage payments easier to handle during that time.

What is a 5/1 ARM interest rate?

For example, if you take out a 5/1 ARM with a rate of 6.7% in December, that’s the interest rate you’ll have over the next 60 months until your rate and payment begin to change on an annual basis.