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How ARM rates work: 3/1, 5/1, 7/1 and 10/1 mortgages

An ARM, short for adjustable rate mortgage, is mortgage on which the interest rate is not fixed for the entire life of the loan. The rate is fixed for a specified period at the beginning, called the "initial rate period", but after that it may change based on movements in an interest rate index.

Adjustable Rate Mortgages 2019. An Adjustable Rate Mortgage (ARM) starts with a rate for a fixed period. In a 5/1 ARM, the fixed period is 5 years, and in a 7/1 or 10/1 it is 7 and 10 years, respectively. After that fixed period, the rate adjusts. It can adjust up or down at that point.

For a so-called 5/1 ARM, for instance, the introductory rate lasts five years. (a 3/ 1 ARM), seven years (a 7/1 ARM) and 10 years (a 10/1 ARM).

So if we’re talking about a 7/1 ARM, it might be priced at 3.75%, and a 10/1 ARM might be priced at 4%, relative to the rates discussed above. Conversely, a 3/1 ARM might be priced closer to 3.25%, and a one-year ARM could be priced in the high 2% range or lower.

ARM rates are becoming more attractive as home prices rise and fixed interest rates increase. Here's how to save money with an ARM home.

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As of July 2019, 7/1 ARM mortgage rates were around 3.67%, on average, nationally. In July 2015, the average mortgage rate for 7/1 ARMs was around 3.29%. In late December 2008 when the U.S. and much of the world was in the midst of a financial crisis, the average mortgage rate for 7/1 ARMs was around 6.30%.

Mortgage rates today, January 2, plus lock recommendations Mortgage rates today, November 30, plus lock recommendations My rate sheets do not reflect the improvement, so my recommendation is to float over the weekend. If you lender reprices for the better today, then it would be wise to go ahead and lock in. -Victor.

For comparison purposes, a 3-year adjustable rate mortgage of $200,000 with a 20% down payment at an APR of 5.214% with 0.250 discount points and a $985 origination fee with a credit score of 740 would result in 36 equal payments of $983.88 and 324 equal payments of $1109.25.

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Types of Adjustable Rate Mortgages. Therefore the APR on a 5/1 ARM will be fixed for 5 years, and may be adjusted once each year for the remainder of the repayment term. The adjustable rate mortgage payment calculator on this page is based on a Hybrid ARM.