What Is a 5/1 Adjustable-Rate Mortgage?

With a 5/1 ARM, you'll score some savings for the first five years, but it's not all good news. There are risks involved, too.

April 15, 2025 · 2 min · 226 words · William Fisher

Table of Contents

The introductory rate is lower than the rate for the most common pop in of home loan,30-year fixed-rate mortgages.

But that doesn’t mean a 5/1 ARM is the best option for you.

TAX SOFTWARE DEALS OF THE WEEK

How does a 5/1 ARM work?

To understand the basics of a 5/1 ARM, let’s look at the numbers.

What happens when a 5/1 ARM rate adjusts?

What index is used for a 5/1 ARM?

Lenders use that index, plus a margin, to set your rate.

How does a 5/1 ARM compare to a fixed-rate mortgage?

A 5/1 ARM can look more appealing to homebuyers because the introductory payments create extra room in your budget.

TheConsumer Financial Protection Bureau offers a handbookthat can empower you with knowledge about these loans.

Is now a good time for a 5/1 ARM?

This means that introductory rates on adjustable-rate mortgages will be more attractive.

FAQS

What does a 5/1 ARM mean?

A 5/1 ARM adjusts once every year after the first five years.

Are ARM loans a good idea?

ARM loans can be a good fit for certain types of borrowers.

What is the average interest rate for an ARM loan?

For 7/1 ARMs, the average rate was 6.8%, and rates for 10/1 ARMs averaged 7.19%.

Keep in mind those are introductory rates that only apply for the initial fixed-rate period.